TIDMRMG

RNS Number : 0270M

Royal Mail PLC

19 May 2022

Royal Mail plc

(Incorporated in England and Wales)

Company Number: 8680755

LSE Share Code: RMG

ISIN: GB00BDVZYZ77

LEI: 213800TCZZU84G8Z2M70

Royal Mail plc

19 May 2022

ROYAL MAIL plc

RESULTS FOR THE FULL YEARED 27 MARCH 2022

 
                                   52 weeks ended   52 weeks ended 
 Reported measures (GBPm)(1)           March 2022       March 2021   Change(3) 
-------------------------------   ---------------  ---------------  ---------- 
 Revenue                                   12,712           12,638        0.6% 
 Operating profit                             577              611      (5.6)% 
 Profit before tax                            662              726      (8.8)% 
 Basic earnings per share 
  (pence)                                   61.7p            62.0p      (0.5)% 
 
 
 Adjusted measures (GBPm)(1,2) 
-------------------------------   ---------------  ---------------  ---------- 
 Operating profit                             758              702        8.0% 
 Operating margin (%)                        6.0%             5.6%       40bps 
 Profit before tax                            707              664        6.5% 
 Basic earnings per share 
  (pence)                                   60.0p            52.1p       15.2% 
 Pre-IFRS16 in-year trading 
  cash flow(4)                                353              614     (42.5)% 
 Net debt                                   (985)            (457)      115.5% 
 Net cash (pre-IFRS 16)                       307              622     (50.6)% 
--------------------------------  ---------------  ---------------  ---------- 
 

Highlights

-- Group revenue performance driven by GLS; reported operating profit down 5.6% year-on-year; adjusted operating profit up 8.0% due to improved profitability in Royal Mail:

-- Royal Mail revenue down 1.6% year-on-year reflecting changing consumer behaviour following removal of lockdown restrictions and lower international volumes, partially offset by growth in test kits; adjusted operating profit of GBP416 million, up 20.9%; adjusted operating margin up 90 basis points to 4.9%, due to benefits of restructuring and non-people cost saving programmes.

-- GLS revenue up 4.4% year-on-year in Sterling (9.6% in Euros), driven by recovery in B2B volumes and freight, adjusted operating profit of EUR402 million, flat year-on-year (although down 4.5% in Sterling), with 8.1% adjusted operating margin (down 80 basis points), in line with expectations.

   --   Volume trends: 

-- Royal Mail: Domestic parcel volume (ex. international) up 31% vs. pre-pandemic period (2019-20); and down 7% year-on-year due to normalisation post lockdown restrictions. Test kits accounted for c.7% of total parcel volume in 2021-22. Addressed letters (ex. elections) volume grew 3% year-on-year following sharp declines last year; down 18% vs. pre-pandemic.

-- GLS: Continued parcel volume growth of 4% year-on-year, driven by domestic and international, with a recovery in B2B volume.

   --   Royal Mail Transformation programme: 

-- GBP59 million benefits delivered from Pathway to Change agreement, low end of revised GBP55 - 80 million range; good performance in Processing; insufficient progress in Delivery.

   --   Achieved 50% parcel automation - North West hub on track to open in June 2022. 
   --   Change agenda even more urgent and important: need to accelerate delivery and broaden scope. 

-- GLS: good progress in France and Canada, margin pressure in US. Addressing short term challenges to maintain trajectory: price & yield management, digitalisation and automation to drive efficiency. Generated c.EUR500 million free cash flow in first two years of Accelerate strategy vs. EUR1 billion target(5) by 2024-25.

-- Strong cash generation: GBP353 million in-year trading cash flow(4) pre-IFRS 16 (2020-21: GBP614 million), including increase in capex of GBP257 million, mainly due to investment in vehicles, hubs and automation in Royal Mail:

   --   Royal Mail GBP178 million in-year trading cash flow pre-IFRS 16 (2020-21: GBP342 million). 
   --   GLS GBP175 million in-year trading cash flow pre-IFRS 16 (2020-21: GBP272 million). 

-- New Group-wide ESG Principles aligned with UNSDGs; the Group has set out to reduce its GHG emissions to zero by 2045.

-- Final dividend: Board proposing 13.3 pence per share; full year ordinary dividend of 20 pence per share, in line with policy.

   --   GBP400 million return to shareholders via share buyback and special dividend completed. 
   --   Outlook 

-- Royal Mail 2022-23: assuming pay deal can be agreed broadly in line with current offer, and without material industrial disruption, current adjusted operating profit consensus of GBP303 million (as at 18 May 2022)(6) sits within range of potential outcomes, with downside risk. Cost savings in excess of GBP350 million identified to mitigate macro-economic pressures.

   --      GLS 2022-23: high single digit revenue growth and operating profit EUR370 - 410 million. 

-- GLS Accelerate: Assuming rebound in GDP growth in 2023-24, target of EUR500 million operating profit in 2024-25 and EUR1 billion accumulated free cash flow by 2024-25 can still be achieved.

Summary segmental results(1,2)

 
                                                 Revenue                           Adjusted operating profit 
-------------------------------------------------------------  ------------------------------------------------------ 
                             52 weeks                                                            52 weeks 
                                ended          52 weeks ended               52 weeks ended    ended March 
 (GBPm)                    March 2022              March 2021   Change(3)       March 2022           2021   Change(3) 
------------------  -----------------  ----------------------  ----------  ---------------  -------------  ---------- 
 Royal 
  Mail                          8,514                   8,649      (1.6)%              416            344       20.9% 
 GLS                            4,219                   4,040        4.4%              342            358      (4.5)% 
 Intragroup                      (21)                    (51)     (58.8)%                -              -           - 
------------------  -----------------  ----------------------  ----------  ---------------  -------------  ---------- 
 Group                         12,712                  12,638        0.6%              758            702        8.0% 
------------------  -----------------  ----------------------  ----------  ---------------  -------------  ---------- 
 

Keith Williams, Non-Executive Chair, commented:

"Whilst a difficult environment persisted over the last year, with operational challenges caused by Omicron and tight labour markets, we continued to see financial tailwinds from the pandemic, which are now dissipating. We also have clear headwinds as we enter 2022-23, such as weakening GDP and growing inflationary pressures. Whilst both GLS and Royal Mail face short term challenges, they also have longer term opportunities.

We are at a crossroads with the transformation of Royal Mail. We need to adapt our business to a post pandemic world and whilst we are making progress in some areas, more needs to be done in others. We need to accelerate and broaden the scope of change to meet the demands of our customers, deliver real efficiency savings with a financial benefit this year and beyond, and remain competitive to support sustainable growth and secure jobs for the future.

In GLS, we made good progress on our Accelerate strategy and we need to continue to harness growth opportunities in a profitable way. We are making good progress in France and Canada, but seeing margin pressure in the US. We are taking actions to address short term challenges, including price increases and accelerating efficiency opportunities, while still investing for the future. GLS can leverage its business model to become more global, digital and diverse."

Simon Thompson, Chief Executive, Royal Mail said:

"It has been a year of progress, but there is much more to do. Over 50% of parcels are now processed automatically, the delivery of two new parcel hubs are on track, and we are reinventing our services and digital experiences to make sending and receiving even easier in an online age.

"But as we emerge from the pandemic, the need to accelerate the transformation of our business - particularly in delivery - has become more urgent. Our future is as a parcels business, so we need to adapt old ways of working designed for letters and do it much more quickly to a world increasingly dominated by parcels.

"The last two years has shown us all how quickly customer needs can change. Our focus now is to work at pace with our people and our trade unions to reinvent this British icon for the next generations, so that we can give our customers what they want, grow our business sustainably and deliver long-term job security for our great team. We have no time to waste."

Martin Seidenberg, Chief Executive, GLS added:

"We delivered a good set of financial results and have made good progress executing our strategy over the past 12 months, despite the challenging market conditions. We further strengthened our international capabilities and invested in our networks and services to unlock further growth and maintain our high quality levels.

Whilst the war in Ukraine has brought about some short term uncertainty, we will continue to leverage our business model and logistics know-how to become more global, digital and diversified."

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. "n.m." is not meaningful.

4. Trading working capital movements and thus in-year trading cash flow have been re-presented to include deferred revenue movements (including Stamps In The Hands Of the Public (SITHOP)) which were previously presented in other working capital.

5. GLS Accelerate free cash flow is calculated as pre-IFRS 16 in-year trading cash flow plus disposal proceeds. Includes four months of Rosenau Transport.

6. Based on company collated consensus for Royal Mail adjusted operating profit in FY 2022-23 of GBP303m as at 18 May 2022; based on 10 analysts' estimates, all received after 25 January 2022.

7. Based on competitors' 2020 and 2021 published reports.

Results presentation

A results webcast presentation for analysts and institutional investors will be held at 9:00am today, Thursday 19 May 2022 at www.royalmailgroup.com/results .

Enquiries:

Investor Relations

John Crosse

Email: investorrelations@royalmail.com

Media Relations

Jenny Hall

Phone: 07776 993 036

Email: jenny.hall@royalmail.com

Helen Reynoldson

Phone: 07483 302 245

Email: helen.reynoldson@royalmail.com

Royal Mail press office: press.office@royalmail.com

Company Secretary

Mark Amsden

Email: cosec@royalmail.com

The person responsible for arranging the release of this announcement on behalf of Royal Mail Plc is Mark Amsden, Company Secretary.

Financial Calendar

 
Q1 Trading update        20 July 2022 
 Annual General Meeting   20 July 2022 
 Ex-dividend date*        28 July 2022 
Dividend record date*    29 July 2022 
Dividend payment date*   6 September 2022 
 
 

*Subject to approval at AGM.

GROUP REVIEW: NON-EXECUTIVE CHAIRMAN, KEITH WILLIAMS

Overview

The past year has presented many challenges as the countries in which we operate emerged from COVID-19 pandemic restrictions and consumer behaviour continued to change. The pandemic has resulted in a step up in the level of parcel volumes compared to pre-pandemic levels. However, some of the tailwinds we experienced last year have subsided, and while we have seen a recovery in letter volumes in Royal Mail, parcel volumes and shifts in mix continue to be volatile.

The Board would like to thank again all of our colleagues across Royal Mail and GLS who have continued to work relentlessly to play a key role and for their unstinting efforts to keep people, businesses and countries connected.

In GLS we saw continued revenue growth, with a recovery in B2B volumes and freight revenues, albeit operating profit was flat in Euro terms, as expected given the absence of certain COVID-related one-off benefits this year and escalating inflationary pressures. At Royal Mail, our primary focus has been to provide our customers with essential services whilst providing a safe environment for our people. Whilst we made good progress in some areas, notably Processing, we need to accelerate the pace of change elsewhere to adapt our business to a post pandemic world, meet the ever-changing demands of our customers, and restore quality.

Inflation rose throughout the second half of the year. Wage inflation in tight labour markets, sharp increases in energy and fuel costs, exacerbated by the war in Ukraine, and a cost of living squeeze in many countries are resulting in an uncertain outlook for GDP and consumer spending, creating significant headwinds as we enter 2022-23.

Given this environment it is more important than ever that we accelerate the transformation of Royal Mail to improve efficiency and continue to harness GLS' growth opportunities in a profitable way.

Financial performance

Group revenue grew by 0.6%, driven by GLS. Group operating profit was GBP577 million on a reported basis (2020-21: GBP611 million). Group adjusted operating profit was GBP758 million (2020-21: GBP702 million), driven by improved profitability at Royal Mail. GLS operating profit in Euros was flat year-on-year, although lower in Sterling terms due to adverse foreign exchange movements. Adjusted basic earnings per share was 60.0 pence (2020-21: 52.1 pence).

Strategy

Royal Mail's strategy is focused on transforming the business into a more efficient parcels-focused operation that meets our customers' changing needs. We are making progress in some areas, but more needs to be done in other areas to accelerate the transformation of Royal Mail.

During the year we continued to improve and simplify our customer offering, and launched a number of new products and services. We also retained the top spot for recipient customer net promoter score and have increased the gap between us and our second-place competitor. However, our quality of service was impacted by high levels of COVID-related absence.

We made progress in our transformation programme, achieving the major milestone of 50% automation in parcel sortation and our first Hub in the North West is about to launch. We also delivered the planned savings in non-people costs. However, delivery of savings from our Pathway to Change agreement was below our initial target, and we will take the learnings from this year into next to improve execution.

We are now at a crossroads. We need to deliver the benefits from change more quickly to deliver sustainable growth. We have made significant operational change already, but this needs to translate into real efficiency savings which deliver a financial benefit next year and beyond. Delivery of our existing agreements and the successful transition into the next agreements, as part of the current negotiations with the CWU, will be key to future profitable growth. We have made a substantial pay offer to our people which will enable the change we need to remain competitive, grow and secure their jobs for the future. Our market is changing quickly, and agility in our response is key.

GLS continued to execute its Accelerate strategy successfully during the year cementing the gains achieved during 2020-21, generating c.EUR500 million of pre-IFRS 16 free cash flow(5) in the first two years against our target of EUR1 billion by 2024-25.

GLS further strengthened its international capabilities with the acquisition of Mid-Nite Sun Transportation Ltd (operating as Rosenau Transport), a freight business operating in Western Canada. Rosenau Transport complements our existing business and the combination gives us full national coverage, as well as connecting our US and Canadian networks. GLS will continue to look for selective bolt-on acquisitions to extend its current footprint, enhance its portfolio and exploit network synergies.

There are also signs of positive revenue progress in previously underperforming markets, France and US. However financial results in the US have been impacted by higher unit operational costs and strong inflationary pressures. As with Royal Mail, GLS has more to do particularly to combat competitive and inflationary pressures which we see ahead.

Responsible business

Being a responsible business and operating in a sustainable way is fundamental to our Purpose. This is the right thing to do and demonstrating leadership in our ESG (Environment, Social and Governance) agenda is also essential if we are to achieve competitive advantage, create value and deliver our strategy. During the year we introduced new Group-wide ESG Principles which are aligned with the UN Sustainable Development Goals, and which encapsulate our commitment to operate in a sustainable way.

In addition, Royal Mail has updated its environment strategy to target Net Zero by 2040, and GLS has launched its own strategy, tailored to its business of working with transport partners, to reduce its emissions to zero by 2045. Both plans include switching to renewable electricity, significantly increasing the use of low/zero emission transport vehicles, and offering customers sustainable delivery solutions.

Cash return to shareholders

In line with our capital allocation policy and the decision to reduce the Group's cash holdings, in November 2021, we announced a GBP400 million return of capital to shareholders, via a share buyback, and the payment of a special dividend. The special dividend was paid alongside the interim dividend in January 2022 and the share buyback completed in March 2022.

As announced in November 2021, provided our economic, commercial and industrial relations environment remains stable, over the next two years we would look to return to our historic position of a broadly net nil cash position (pre-IFRS 16). We will however keep this under review, taking into account any capital requirements for M&A.

Ordinary dividend

The Board is proposing a final dividend of 13.3 pence per share. Combined with the interim dividend of 6.7 pence per share paid in January 2022, this gives an ordinary dividend for FY 2021-22 of 20 pence per share, and is in line with our sustainable progressive dividend policy.

Board changes

Shashi Verma joined the Board as a Non-Executive Director on 29 September 2021 and became a member of the Nomination Committee and the ESG Committee at the same time. As announced on 1 February 2022, Rita Griffin will step down from the Board at the end of our forthcoming AGM. Rita, who has been a Non-Executive Director since December 2016, will also step down as Chair of the ESG Committee and a member of the Nomination Committee at the same time. On behalf of the Board, I would like to thank Rita for her valued contribution and wish her well for the future.

Lynne Peacock joined the ESG Committee on 1 February 2022. She will succeed Rita as Chair of the ESG Committee at the conclusion of our AGM and at the same time step down as Chair of the Remuneration Committee. Maria da Cunha, who is an existing member of the Remuneration Committee, will take over from Lynne Peacock as Chair of this Committee. Maria will continue in her role as Designated Non-Executive Director for engagement with the workforce.

As announced today, Jourik Hooghe will join the Board with effect from 1 June 2022 and become a member of the Nomination and Audit and Risk Committees.

Outlook

The trading environment is uncertain for both Royal Mail and GLS. All of our markets are impacted by the more challenging global economy, including increasingly high levels of inflation and expectations of lower future economic growth. Whilst the positive revenue impacts from COVID-19 such as growth in online retail and test kits are abating, we still have additional COVID-related cost and inefficiency in our networks.

Royal Mail

In Royal Mail, it is clear that the scale of both the revenue and cost headwinds we face now require an acceleration in pace and an extension in scope of our business transformation.

We expect revenue to decline in 2022-23, in particular the first half which has strong comparatives in the prior year, which included a period of lockdown. We anticipate a reduction in test kit volume, and the domestic parcels market in the UK is now expected to decline year-on-year. For addressed letter volumes excluding elections, our current models suggest a high single digit percentage decline.

Royal Mail will also incur costs associated with an increase in Employer National Insurance (c.GBP50 million per annum) and flow through costs associated with the 1 hour shorter working week, granted in the middle of 2021-22 (c.GBP40 million). In addition, we have pay deals to agree this year with both CWU and Unite, the impact of which is currently uncertain. The CWU pay deal is most material in terms of value, with 1% of pay equating to c.GBP45 million of cost inflation.

In order to offset the revenue and cost headwinds, we have identified a number of cost saving initiatives. Already in deployment, or associated with agreements already made with our trade unions, are initiatives totalling over GBP350 million. These include the benefits from our ongoing operational management restructuring (GBP30 million saving in 2022-23 and GBP40 million annualised, plus the non-recurrence of the GBP70 million restructuring charge), the next phase of productivity improvements from our Pathway to Change agreement with CWU, removal of residual costs from COVID-19, including rental vans and resource covering absence, and the next phase of non-people cost reduction.

Our three-year rolling hedging strategy for fuel and energy is also mitigating some of the energy cost inflation we are facing, which when combined with fuel surcharges introduced into some contract prices, means we should not see a negative impact year-on-year.

We are also looking to mitigate the above headwinds through price increases and growth initiatives. We have already increased domestic prices of our letter services by an average of c.7%, and parcel prices by an average of c.4%, in addition to the fuel surcharge.

Overall, assuming a pay deal for change can be agreed broadly in line with our current offer and without material industrial disruption, current analyst consensus of GBP303 million (as at 18 May 2022)(6) is within our range of potential outcomes for the year, however the level of current headwinds presents risks to the downside. The first half will be more challenging, given the strong comparatives from last year when COVID-19 restrictions were still in force, and benefits from some transformation initiatives more second half weighted.

In the medium term, we still see potential for a 5%+ margin if we can complete our new pay deal with the union and successfully deliver our change agenda.

GLS

In GLS, there are similar inflationary pressures from fuel, energy and wages - in some of our markets (e.g. Germany) we are seeing material minimum wage increases. We also face a challenging GDP backdrop with decreasing consumer confidence and spending in many markets, with stronger comparator periods in the prior year, when lockdown restrictions were still in force. As a result, we expect a slowdown in volume growth and margin pressure in 2022-23.

To mitigate these pressures, we are looking to continuously evaluate pricing during the year ahead, including fuel surcharging, and to improve yield management, alongside the development of further automation and digital tools to optimise efficiency across both final mile and linehaul networks.

Revenue growth is expected to be a high single digit percent, with an operating profit between EUR370 million - EUR410 million.

We believe the EUR500 million 'Accelerate' operating profit target in 2024-25 is still achievable if there is a rebound in GDP growth in 2023-24 to pre-pandemic levels; though if the current challenging macro-economic conditions persist, it may require a longer timeframe to achieve the target.

ROYAL MAIL OPERATING AND STRATEGIC REVIEW: CHIEF EXECUTIVE, SIMON THOMPSON

Overview

We are focused on transforming Royal Mail into a more efficient parcels-focused business to reflect the changing needs of our customers. We will continue to own trust at the doorstep, compete on quality and cost whilst differentiating with our people and our low CO(2) /parcel. Whilst 2021-22 presented operational challenges, with Omicron and elevated levels of absence, we continued to benefit from pandemic tailwinds, which are now dissipating. During the year, we made progress on many of the six priorities we set ourselves. We have made many changes to our management capability and structures. We are laying the ground for the future of Royal Mail's network with our new state of the art North West hub, which will launch in June 2022, and with our strategy to be Net Zero by 2040.

However, whilst we delivered benefits from Pathway to Change in Processing, overall we did not make sufficient progress with our change programme. Performance in Delivery was disappointing. With growing inflationary pressures and a deteriorating macro-economic outlook, we must change how we work today, accelerate the pace of delivery and make sure we reflect the needs of the customers and align our workload with our labour.

We continue to work with Unite/CMA through our joint transformation agreement as we implement structural change. Whilst there was a recent threat of industrial action both parties in mid-May have reached agreement on some key principles and an agreed way forward. We have entered into pay discussions with CWU, and as part of these we have been informed CWU are making preparations for possible ballots for industrial action. This does not necessarily mean there will be industrial action. We want to reach agreement with CWU, but industrial action, or the threat of it, is damaging for our business and undermines the trust of our customers. It also makes delivery of our change programme more difficult and puts at risk our targets for 2022-23. We remain committed to working closely with both our unions to deliver the change we need to grow our business sustainably, and ensure long-term job security for our great team.

Operating Review

In 2021-22 Royal Mail revenue decreased 1.6% to GBP8,514 million. This was driven by a 6.5% decline in parcel revenue as a result of the strong comparative period which included several months of national and local lockdowns. This was partially offset by a 5.6% increase in letter revenue which had declined sharply during the pandemic. Revenue from parcels accounted for 56% of total Royal Mail revenue (2020-21: 59%). Adjusted operating profit was GBP416 million (2020-21: GBP344 million). Adjusted operating profit margin was 4.9%, up 90 basis points.

In-year trading cash inflow pre-IFRS 16 decreased by GBP164 million to GBP178 million. Gross capital expenditure increased by GBP231 million to GBP441 million largely driven by investment in our two new parcel hubs, increased parcel automation across our network, vehicles, including electric vehicles, and PDAs to support our frontline colleagues. Further detail is included in the Financial Review.

Parcels

Domestic parcel volumes (ex. international) decreased by 7% reflecting the lower levels of lockdown restrictions compared to the prior year. Domestic parcel revenue (ex. international) decreased by 2.4%, reflecting positive product/channel mix. Domestic parcel volumes (ex. international) increased by 31% compared to pre-pandemic levels, reinforcing our view that the pandemic has resulted in a step up in domestic parcel volumes driven by increased e-commerce activity. Volumes for our premium products, Tracked 24(R) / 48(R) and Tracked Returns(R) , continued to grow, by 17% in 2021-22 (2020-21: 79%). Excluding the effect of test kits Tracked 24(R) / 48(R) and Tracked Returns(R) , volume growth was flat (2020-21: 74% growth).

Royal Mail continued to support the Government's COVID-19 testing programme. We expanded capacity and prioritised delivery and collection of test kits in response to increased demand around Christmas due to Omicron. Over the year, test kits accounted for around 7% of total parcel volume. Q4 2021-22 saw the highest quarterly volume of tests kits; however there was a significant step down in the final weeks of the year, as expected, following the announcement of the withdrawal of free testing in England from 1 April 2022.

We believe that in 2021-22 we grew our revenue share of the domestic parcels market, based on our internal models.

International parcel volumes, including import and export parcels for Royal Mail and Parcelforce Worldwide, were down 42% year-on-year, impacted by increased customs processing requirements into the EU, reduced air freight capacity and persistently higher conveyance costs compared to pre-pandemic. International parcel revenue decreased 23.3% reflecting management of price and mix - export volumes showed smaller declines than import volumes over the year, and we saw increases in average unit revenue for both import and export parcels.

Letters

Addressed letter volumes (excluding elections) were up 3%, partially recovering the significant decline in the prior year, but were down 18% compared to pre-pandemic, reflecting the continued structural decline in the letters market.

Advertising Mail recovered strongly, with volumes up 30% year-on-year. Business Mail volumes experienced a 1% decline due to continued e-substitution of more transactional mailings and tougher prior year comparators as the year progressed.

Total letter revenue, up 5.6%, benefitted from a positive price mix.

Costs

Total adjusted operating costs decreased 2.5% to GBP8,098 million (2020-21: GBP8,305 million).

Adjusted people costs were down 0.6%. The management restructure programme, which led to a GBP93 million one off restructuring charge in 2020-21, delivered a sustainable GBP115 million benefit year-on-year, as expected. The Pathway to Change agreement enabled us to implement the largest amount of change to our operation in a single year, with 87% of planned activities completed and around 1,800 revisions implemented (including 1,270 in Delivery). However, we delivered savings of GBP59 million, at the lower end of our revised guidance range and below our initial target of over GBP100 million. Whilst performance in our processing sites was good, in our delivery units performance was disappointing. We must do better. Going forward, the learnings - which include ensuring operational stability before implementing change, that we have the right leadership which involves our postmen and women, and that everyone is committed to making it work - will enable us to improve implementation in the future. We are committed to making up the shortfall in our performance in 2022-23.

COVID-19 people costs were down GBP18 million, a lower reduction than we had originally envisaged, due to an extended period of social distancing requirements and absence rates remaining elevated for longer than expected. The overall level of absence was 8.0% in 2021-22 (2020-21: 8.5%), and a peak of 12.1% on 5 January 2022, driven by the Omicron wave (2020-21 peak absence of 18.9%). This compares to pre-pandemic levels of 5-6%. This had a significant impact on our quality of service.

Pay costs increased by GBP122 million driven largely by the 1% pay award for frontline staff, costs for the 1-hour reduction associated with the shorter working week, along with costs related to working time regulation holiday pay and managerial pay awards.

Productivity in the year was down 0.2% year-on-year as the business was slower to take out costs in Delivery due to lower-than-expected volumes following a faster-than-expected reopening of the UK High Street and lower than anticipated benefits from Pathway to Change.

In January 2022 we announced a further restructuring programme to streamline operational management and improve focus on performance at a local level. This resulted in a one-off voluntary redundancy charge of GBP70 million in the fourth quarter. This programme is expected to deliver annualised benefits of GBP40 million, with GBP30 million in 2022-23.

Non-people costs decreased 6.4%. Our GBP200 million two-year non-people cost saving plan was delivered, with GBP112 million achieved in 2021-22. Distribution and conveyance costs decreased as a result of lower terminal dues. However, there were increased costs of vehicle hires and fuel as part of maintaining social distancing measures. Infrastructure costs decreased driven by lower depreciation and amortisation. Other operating costs decreased due to a reduction in COVID-19 related costs by GBP35 million and volume related savings.

Strategic update: Customer, Trust and Growth

Our mission is to own trust at the doorstep.

We believe that trust in our people, our brand, and our nationwide hyper-local network is a platform for profitable growth. 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 in front of us. At the same time as improving our efficiency, we are becoming a more agile, customer-focused business. We will compete on quality and cost, win with people and CO(2) , and once we have transformed and completed our new pay deal with the union, our ambition over the medium term is to deliver a sustainable 5%+ adjusted operating profit margin.

Performance in 2021-22 has highlighted the need for more wide-ranging change and to accelerate the pace of our transformation to adapt our business to a post pandemic world and deliver significant benefits to all our stakeholders. Our change agenda is now even more urgent and important than it was a year ago - this forms the basis of our pay discussions with CWU and we want to work together to deliver this change which will secure growth and jobs for the future.

Our strategy has three key pillars:

-- Customer: Improve and simplify our customer offering through great quality of service and easy to understand and simple to use products.

   --      Trust: Rebuilding trust with our people and unions. 

-- Growth: Grow our business, our share, and the market through greater capacity and new innovative products and services.

Productivity is also important and our "ticket to play", delivering the change that we need such as our new parcel delivery model and increasing our parcel automation, so we can compete on cost and quality.

Progress against strategic priorities this year

In May 2021 we outlined the following six strategic priorities for FY 2021-22:

   --      Achieve our quality of service targets and being number one on NPS (Net Promoter Score). 
   --      Deliver the CWU agreement on time and realise GBP100+ million benefits. 
   --      Continue to increase our own internal Trust score. 
   --      Rapidly reduce managers' daily activities and policies. 
   --      Achieve 50%+ parcel automation by the end of the financial year. 
   --      Deliver GBP110 million of non-people cost savings. 

Despite the operational challenges of the past year, we have achieved the majority of the targets we set ourselves. Royal Mail is number one in the industry for Net Promoter Scores. Our internal Trust Score has seen a significant increase from 62 to 68 in a year, with participation in the survey growing from 48% to 69%. Through our 'Day in the Life of' programme we have significantly reduced the number of policies for managers and repurposed 1.6 million hours of operational management time from daily administrative tasks, allowing them to focus on their teams and their customers. We reached 50% parcel automation as at end of March 2022, up from 33% a year earlier. And we have delivered GBP112 million of non-people cost savings, in line with our target of c.GBP110 million in 2021-22 and GBP200 million over two years.

I would like to thank our people for their continued hard work and dedication as we reinvent Royal Mail for the next generations. This was never going to be easy, but we can already see the benefits of many of the changes we have made.

However, there is much more to do and there were some areas where our performance last year was not as we would have wished, namely in delivering Pathway to Change efficiencies, and service quality.

Customer

The first pillar of our strategy is all about the Customer: simplifying and improving our customer offering, listening and adapting to what our customers need, and delivering a great service every day.

At the start of the year we set out plans to get back to consistently achieving our regulatory quality of service targets, which had been suspended for part of the pandemic in recognition of the challenges Royal Mail had to face with COVID-related absence, and the introduction of more social distancing across our operation. I am disappointed to say we have not achieved this. COVID-19 had a more prolonged impact on our business than we had expected, with high levels of absence during the 'pingdemic' in July and the rise of Omicron in particular later in the year. Further, we have faced challenges in recruitment due to a buoyant job market as well as coping with the change of traffic mix in our operation, with more parcels and fewer letters versus pre-pandemic.

At the peak of Omicron, absence levels were double what we would expect to see at that time of the year pre-pandemic, with over 15,000 people off sick in January 2022. Although we took immediate steps to restore a comprehensive service, which involved recruiting additional temporary staff and establishing a specialised dedicated Delivery task force to provide targeted support to the most impacted offices, our Full Year Quality of Service results were disappointing, at 81.8% for First Class mail and 95.4% for Second Class mail.

We are delivering a good service in most delivery offices, but there are a small number where the quality performance is disproportionately impacting overall numbers. We have over 1,200 delivery offices, and around 4% are responsible for around 23% of delayed items.

The experience of the past 12 months has shown that we need to change our model in Delivery. In recent months, we have reduced the leadership layers from eight to five to push decision making close to the customer so we can act with speed. This has reduced the maximum team size from 56 to 44, with two thirds of delivery offices having average team sizes under 35.

During the year we launched or improved a number of new products and services and scaled some of our existing ones:

-- Parcel Collect: Demand for our doorstep collection service, Parcel Collect, continues to grow. We have collected around 5 million parcels since its launch in October 2020. During the year we launched enhancements including offering customers pre-printed labels and improving the booking process through the new and improved Royal Mail App to eight steps and less than 60 seconds.

-- Improved Royal Mail App: On the upgraded app, customers can now easily track, send and collect items, and check the estimated carbon emissions from their deliveries. Products have been categorised into three tiers, making it easier for customers to find the right postage for their needs online. The number of users has grown from 4 million users to nearly 7 million (end of March 2021 to end of March 2022), and with an iOS rating of 4.7 on the app store, it ranked in the top three within the "Lifestyle" category.

-- Sunday services: Demand from our major commercial retail customers for Sunday deliveries continues to grow. Around 75 of our major commercial retail customers now use this service, including Moonpig and Bloom & Wild, compared to 45 customers in November 2021, with an exit rate in 2021-22 of around 12 million items. We have set out plans to scale up our Sunday services so that all customers - including businesses large and small - can benefit from the e-commerce revolution.

-- Barcoded stamps : As part of our modernisation drive, we are rolling out unique barcodes on stamps to facilitate operational efficiencies, enable the introduction of added security features and pave the way for innovative services for customers. The new barcoded stamps have a digital twin and the two are connected by the Royal Mail App. Barcoded stamps currently give customers the ability to watch and share exclusive videos by scanning the barcode in the Royal Mail App, and further developments are planned.

Accelerating our sustainability initiatives: We know when speaking with our customers that they are increasingly looking for less environmentally impacting delivery options. Thanks to our 'feet on the street' delivery model, powered by over 90,000 postwomen and men, Royal Mail already has the lowest reported CO(2) e grams per parcel amongst major UK parcel operators(7) . But there is much more to do and reflecting our sustainability commitment we have set an ambitious target for Royal Mail to reduce average emissions per parcel from 205g CO(2) e in 2021-22 to 50g CO(2) e on our journey to net zero. We now aim to be a net zero business by 2040, ten years earlier than our previous target date. In the past year we have announced plans to introduce around 3,000 additional electric vans, have introduced low emission gas powered trucks and trialled micro-electric vehicles in our network, and announced that all our employee company cars will be electric by 2030. We are also planning to significantly increase rail transportation and reduce our use of domestic flights to reduce our environmental impact further.

Consumer workshops on the future of post and the Universal Service (USO): We are proud to deliver the Universal Service and remain committed to providing an affordable and sustainable 'one price goes anywhere' service to all households across the UK. But as customer needs change, so must we. The demand for parcels continues to increase, while letter volumes are down by more than 60% since their peak in 2004-05. Given these significant changes we continue to believe the best way to ensure that the Universal Service remains relevant and meets customers' needs is to rebalance more towards parcels. To inform our thinking, we ran a series of 15 consumer roadshows and a series of stakeholder roundtables throughout February and March to explore what people want from postal services in future. This showed that there is support for Royal Mail to deliver parcels seven days and - similarly to Ofcom's User Needs research in 2020 - that a five day a week letter service would meet the needs of most people. It also highlighted the importance of tracking, safeplaces and reducing the need for people to go to a Customer Service Point to pick up undelivered parcels. We are currently considering these findings, and look forward to working constructively with all our stakeholders to ensure the Universal Service remains relevant and sustainable for us all, now and in the future.

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 work together to meet ever-changing customer needs in an efficient way is our big unlock.

-- Delivering a positive step change in our relationship with our people: We operate a monthly listening programme that enables us to measure sentiment across our employee base. Feedback through the year showed we are making progress and we have seen trust scores improve across all our operational areas. In total, trust scores have improved by 6 points, from 62 in April 2021 to 68 in April 2022, with 69% now taking part in the survey compared with 48% a year ago. But there is still too much variation unit to unit and we are actively working on levelling performance up across our organisation.

-- Enable direct conversations between all our people: Building a genuine two-way dialogue with our people is a key part of rebuilding trust. Over 45,000 colleagues are now on Workplace and are using it to recognise great work, share ideas and best practice, access information and problem solve issues. My Executive Board and I host a weekly Q&A and regular Live events, where we engage with employees directly on issues that really matter to them.

   --      Putting in place the next generation of apprentices: During the year we launched our Postal Apprenticeship programme. This is one of the largest programmes of its kind in the UK. 

-- Royal Mail Academy: A Royal Mail Academy has been set up to train and invest in managers, starting with frontline operational managers, by equipping them with the right suite of skills to do the job effectively.

-- Driver Academy: Earlier this year we launched a new Driver Academy, in partnership with CWU , to train and develop future LGV and MGV drivers. The Driver Academy is comprised of four training pathways, including an apprenticeship scheme with an initial cohort of around 20 people, who will train to become road ready category C+E qualified drivers within 13 months.

-- Strengthening our operational leadership team: In March 2022 Grant McPherson joined as Chief Operating Officer from Jaguar Land Rover where he was Executive Director of Global Manufacturing. At the same time Angela Noon was appointed as our new Chief Financial Officer, having joined from Siemens UK & Ireland where she was the CFO and Executive Director of Siemens plc and Siemens Holdings Group companies. Mark Briers joined earlier this year as Chief Analytics and Data Officer, a newly created role that underlines the importance of turning data into insight which can be used to improve our performance and drive growth in our business. Mark previously worked at the Alan Turing Institute, the UK's national institute for data science and artificial intelligence. Zareena Brown joined in October 2021 as our new Chief People Officer. Her prior role was at Britvic where she was Chief Human Resources Officer. Zareena's role focuses on scaling our trust agenda, engagement with our trade unions, championing diversity and inclusion, and training and support.

Industrial relations

We have entered into pay discussions with CWU and have tabled what we believe is a fair pay offer that recognises current inflationary pressures whilst enabling the transformational change which will secure growth and jobs for the future. Our total pay offer is worth up to 5.5% for CWU grade colleagues:

-- 2% would be paid to all CWU grade colleagues as soon as an agreement is reached, and this would be backdated to April 2022;

   --      A further 1.5% would be paid from the date upon which we implement the changes agreed; 
   --    In addition, a new 'above and beyond' bonus - worth up to 2% of salary. 

This is the biggest pay offer we have made for many years. However, we need to ensure that any deal sets us up for tomorrow, and not just today. So as part of our negotiations we want to agree a series of changes to our delivery model and ways of working to ensure we can compete and adapt more quickly to changing customer needs.

CWU has rejected our offer, and has informed Royal Mail it is making preparations for a possible ballot for industrial action. We believe this is premature and have entered into our formal Dispute Resolution Procedures to try to secure agreement. This process was put in place to help deal with this kind of situation. We are going into it in good faith to try and reach an agreement and give our people a pay increase as soon as possible.

In January 2022, as part of our transformation programme we entered into a formal consultation with Unite/CMA to reorganise our operational management and reduce management layers from eight down to five. The proposals we put forward were designed to simplify and streamline our operational structures to ensure an improved focus on local performance and devolve more accountability and flexibility to frontline operational managers. Whilst there was a recent threat of industrial action both parties in mid-May have reached agreement on some key principles and an agreed way forward. Managers have now been informed of their new roles and the new structure will be in place by the end of May 2022.

We want to reach agreement with CWU and to continue to work with Unite/CMA as we implement structural change. Any industrial action, or the threat of it, would be damaging for our business and undermines the trust of our customers.

Delivering the Pathway to Change agreement

We implemented around 1,800 revisions across our operations; defined and rolled out a new productivity standard with a three-year flightpath to achieve in all units; introduced new Scan-in, Scan-Out technology at 43 sites, including all Mail Centres and Regional Distribution Centres to improve operational efficiency; rolled out our new delivery to specification technology, an algorithm to deliver mail as per the product specification and therefore reduce costs; and agreed a new dispute resolution process which has reduced the number of disagreements from 595 in November 2019, with an average resolution time of 80 days, to 151 disagreements as of the end of March, with an average resolution time of 36 days.

However, it was disappointing that we only delivered GBP59 million of benefits, at the low end of our revised guidance range and less than the GBP100+ million we had originally targeted. Following a pilot, the delivery resourcing technology was not as user friendly as expected so we are working to improve it. We plan to recommence trials of an enhanced tool in the second half of 2022-23. And on revisions, whilst we made good progress in Processing, in Delivery we fell short of our target. Whilst 886 table top revisions delivered 2.1% productivity, and 166 structural or major change revisions delivered 5.8% productivity, 203 structural revisions did not go well and had a negative productivity impact of 7.2%.

We have been working closely with CWU to understand lessons learnt into next year and beyond. There are three things that need to be in place to ensure revisions go well; the operation must be stable before deployment; leaders must be skilled at a revision and must involve the frontline in all of the change; and it is important that everyone is embracing the change and is committed to making it work from day one. Going forwards the learnings from last year will enable us to improve implementation.

Growth

Transforming our network

Transforming our network and working practices to adapt to parcels is key to our growth. We need to do this as quickly as possible to ensure we are operating efficiently, and profitably, to make the most of the opportunity we have in the market.

-- Two new hubs on their way: We are making great strides in transforming our network into a more modern, efficient and technology-enabled operation capable of handling larger parcels more efficiently. Our state-of-the-art North West Hub is on track to open in June 2022. The size of 4.5 football pitches, the new Warrington-based plant will have the capacity to sort over 800,000 parcels a day. Our Midlands Hub, based in Daventry, is on track to open in Summer 2023.

-- A step change in parcel automation: In addition to the new hub, this year we have also installed five parcel sorting machines in mail centres across the country, including in Nottingham, Chester and Cardiff. As at 31 March 2022, the total number of machines in operation was 25. This number will increase to around 39 by the end of 2022-23. As a result of these initiatives we have achieved the major milestone of 50% automation in parcel sortation - the target we set last year. Furthermore, we are well on track to reach 70% automation in parcels sortation by 2022-23 and 90% by 2023-24.

-- Expanding our healthcare offering: Royal Mail has played a key role during the pandemic supporting the delivery of test kits and Personal Protective Equipment (PPE) for the nation and already deliver the majority of prescriptions ordered online. We scaled our operation rapidly during the pandemic, and have built the expertise and capability to play a leading role in the growing market for online prescriptions and healthcare deliveries. We will capitalise on the growth in this market through a new dedicated healthcare offering, Royal Mail Health.

The future

As we enter 2022-23, the financial tailwinds from COVID have receded. Wage inflation in tight labour markets, sharp increases in energy and fuel cost exacerbated by the war in Ukraine, and the cost of living squeeze are resulting in an uncertain outlook for GDP and consumer spending and creating significant headwinds. Against that backdrop, our focus is on delivering cost savings of over GBP350 million and continued investment in the business.

Ongoing investment in our network will be around GBP350 million, on hubs, technology advancements and best in class parcel processing.

In the medium term, we still see potential for a 5%+ adjusted operating profit margin if we can complete our new pay deal with the union and successfully deliver our change agenda.

But we must change how we work. Our change agenda is now urgent and important and it cannot happen fast enough.

GLS OPERATING AND STRATEGIC REVIEW: CHIEF EXECUTIVE, MARTIN SEIDENBERG

Overview

The demand for parcel services continued to grow in 2021-22, with the structural shift in demand for B2C services brought about by a change in consumer behaviour accelerated by the COVID-19 pandemic being confirmed. GLS continued to take advantage of these trends, although due to a recovery in B2B volumes during the year, the share of B2C volumes (55%) was marginally lower compared with the unusually high level of the prior year (57%). Nevertheless, this was still significantly higher than the pre-pandemic B2C share of 48% in 2019-20. We are continuing to pursue our Accelerate strategy, also targeting the B2C segment and further building on our already strong presence in the International and B2B segments. The war in Ukraine has brought about some short-term uncertainty. However, assuming there is an economic rebound in 2023-24, delivery of the Accelerate operating profit of EUR500 million in 2024-25 and EUR1 billion cumulative pre-IFRS 16 free cash flow(5) (over the five-year period from 2020-21 to 2024-25) can still be achieved.

Operating Review

GLS performed well during the year with revenue growth of 4.4% to GBP4,219 million, driven by a combination of higher volumes, better pricing and the contribution from the Rosenau Transport business acquired in Canada. Adjusted operating margin declined by 80 basis points. Operating margin in the prior year benefited from some temporary positive effects related to the COVID-19 pandemic. During the year, the impact of foreign exchange movements adversely impacted revenue by GBP207 million and favourably impacted costs by GBP191 million, resulting in a reduction in operating profit of GBP16 million.

We continue to invest in growth, with capital expenditure of GBP162 million (2020-21: GBP136 million). In-year trading cash flow remained strong, at GBP239 million, compared with GBP330 million in the prior period. Further detail is included in the Financial Review.

Market performance

Similar to Royal Mail, there has been a structural shift in consumer behaviour driven by the COVID-19 pandemic, with parcel volume growth of 30% compared to pre-pandemic levels in 2019-20, and revenue growth of 33.5% (37.2% in Euro terms, of which 35.0% is organic) compared to the same period.

We saw revenue growth in almost all markets, driven by volume and price/mix, but with inflationary cost pressures which resulted in a decline in margin. GLS adjusted operating profit margin was 8.1% compared to 8.9% in the prior period, in line with expectations and reflecting temporary positive effects in the prior year which benefited margins, such as scale effects and pricing initiatives in certain markets.

Performance in our key markets is highlighted below, with revenue growth and cost development detailed in Euro terms.

Germany revenues grew by 8.1% driven by a combination of volume growth and better pricing, but due to inflationary impacts on costs, operating profit year-on-year was lower. In Italy revenues grew by 8.8%, benefitting from a recovery in B2B volumes and better pricing, and with the resulting operating profit ahead of the prior year.

We are pleased with our performance in France where revenues grew by 8.8%, driven by a recovery in B2B volumes and building on customer wins achieved during the COVID-19 pandemic. Operating losses narrowed further during 2021-22 in France, building on the strong improvement delivered in the prior year, which showed a significant reduction in losses compared with 2019-20.

Spain continued to perform well, with revenue growth of 7.7%. Operating profit was slightly below the prior year, with some margin compression resulting from higher operational costs.

The US reported revenue growth of 11.1%, driven by higher B2C volumes and increasing freight revenues. However, higher unit operational costs, driven by a shortage of drivers, which impacted final mile and line-haul costs, and strong inflationary pressures impacting the general cost base, resulted in a deterioration in profit versus the prior year and an overall loss. Measures focussing on improving unit costs and increasing the scale and quality of revenues are underway.

Organic revenue growth in Canada was 16.7%, benefitting from good growth in parcel volumes and a recovery in freight revenues, as well as improved pricing. The business continues to perform well, delivering margins above the group average. The acquisition of Rosenau Transport, which was completed on 1 December 2021, is performing in line with expectations. Initiatives to integrate Rosenau Transport with the pre-existing business in Canada to secure synergies are underway.

In our businesses in Eastern Europe we saw continued strong growth in revenues driven by higher B2C volumes, with particularly good performances in Hungary, Czech Republic and Croatia.

Strategic update: Accelerating GLS

Our 'Accelerate GLS' strategy, which builds on our distinctive and proven business model is focused on:

   --      Strengthening GLS' top position in the cross border deferred parcel segment. 

-- Strongly positioning GLS in the 2C parcel market, whilst securing its leading position in the 2B segment.

   --      Inspiring the market through innovative digital and sustainable customer-focused solutions. 

We have made good progress executing this strategy at the same time as delivering a good set of financial results, despite the challenging market conditions described in the Operating Review.

Strengthening our top position in the cross border deferred parcel segment

During the year we have further strengthened our international capabilities. Our network capacity and footprint has been significantly upscaled. This fiscal year we have been investing in building, extending and upgrading over 100 hubs and depots. We are increasing capacity as well as investing in new sorters, dim-weight scanners and other equipment to increase efficiency. These investments will help us to unlock further growth and maintain our high-quality levels.

We have also expanded our offering to include more convenient services and products that enhance our customers' experience. With our growing fine meshed network of alternative pick-up points (parcel shops and parcel lockers), we provide a good omni-channel mix of last mile delivery solutions to our customers.

In December 2021 we completed the acquisition of Rosenau Transport, a freight business operating in Western Canada. Rosenau Transport complements our existing business in Canada and the combination gives us full national coverage, as well as connecting our US and Canadian networks.

Our scalable and flexible business model, together with our proven track record of successfully integrating our network in new markets, positions us well to further grow our international footprint. We continue to consider a number of opportunities capable of delivering long term sustainable value.

In February 2022, Saadi Al-Soudani, our Group Area Managing Director for North America, Iberia and Nordics and Managing Director International, also took on the role of Chief International Officer. This newly created role reflects the strategic importance of our international network expansion strategy. Saadi joined GLS in 1993 and has held a number of senior management positions across the business.

Strongly positioning in 2C market and securing position in 2B segment / Inspiring the market

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.

We are continuing to strengthen our connection with our customers through expansion of our digital offering. During the year we launched new customer apps in a number of markets including Spain and Denmark. These digital solutions make parcel delivery more convenient, for example through real time tracking, and enable us to engage directly with our customers and gather valuable immediate feedback about their delivery experience.

We have also strengthened our market positioning through our rebranding initiatives which helped to increase brand awareness and position GLS as a new, modern and fresh brand.

In response to customer demand for more sustainable solutions we are intensifying our efforts to make all aspects of our business more sustainable. We have added over 1,200 low or zero emission vehicles to our existing fleet and as of January 2022, over 80% of GLS operated sites are using green electricity. We have also rolled out our Climate Protect programme across our European footprint, now compensating all CO(2) emissions across our entire European logistics value chain through certified projects. Looking further ahead our ambition is to reduce our emissions to zero by 2045.

The future

Uncertainty brought about by the war in Ukraine is expected to have a negative impact on the macro-economic environment, global GDP and parcel growth. Therefore the 2022-23 operating profit is forecasted to be in the range of EUR370 million to EUR410 million.

To remain on our long-term growth trajectory, we want to leverage our business model and logistics know-how beyond our current setup. We will push further to become more global, digital and diverse. To achieve this, we will expand the network and our sustainable delivery model and we will further digitalize and diversify the GLS portfolio.

Our 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 seek to mitigate these risks is also explained below.

 
Risk                         Status                        Controls and actions 
                                                            to mitigate 
---------------------------  ----------------------------  ----------------------------------------------------------- 
 
  1. Failure to reduce our cost base (previously called 'Efficiency') 
  - High risk 
---------------------------------------------------------------------------------------------------------------------- 
We must become more          Stable risk                   We have a number of initiatives 
efficient                    In common with many            in place to drive efficiency 
and agile to compete         businesses,                    across the Group, including: 
effectively in the parcel    there are inflationary          *    Transforming our UK business from a letters-led to a 
and letter markets.          cost pressures across                parcels-led operation through network optimisation. 
The success of our strategy  the Group, exacerbated 
relies on the reduction      by the war in Ukraine 
of our cost base whilst      including labour, energy        *    Building dedicated parcel hubs and installing 
managing wider economic      and other supply costs.              automated parcel sorting machines. 
pressures and the            While our delivery network 
Industrial                   in Royal Mail provides 
Relations environment        a strong competitive            *    Embedding a range of digitally enabled work tools. 
to deliver productivity      position, particularly 
benefits across all areas    in the combined delivery 
of the business.             of letters and small            *    Simplifying products and services and developing 
Failure to reduce costs      parcels, it is not currently         customer-focused technology solutions. 
while at the same time       optimised for the increased 
delivering high-quality      demand for flexible 
services could result        acceptance                      *    Accelerating GLS' pricing and productivity 
in a loss of customers,      times and larger parcels.            initiatives. 
market share and revenue.    Effective working 
                             relationships 
                             with our trade unions           *    Reviewing the operational efficiency of GLS' 
                             are key to the delivery              networks. 
                             of ongoing efficiency 
                             benefits (see risk 5. 
                             Industrial action). 
                             In GLS, we need to ensure 
                             that our networks and 
                             processes are optimised 
                             to withstand inflationary 
                             cost pressures and support 
                             sustainable growth. 
---------------------------  ----------------------------  ----------------------------------------------------------- 
 
  2. Economic and political environment - High risk 
---------------------------------------------------------------------------------------------------------------------- 
Macro-economic conditions    Stable risk 
 and/or the political        We continue to monitor         *    Regular review and update of scenarios to inform a 
 environment across our      the economic, political             range of medium- and long-term economic outcomes and 
 markets may adversely       and wider external                  strategic actions to maintain a strong liquidity 
 affect the Group's ability  environment                         position, with good levels of cash and limited 
 to control costs and        across all of our markets.          financial debt. 
 maintain and grow revenue   The economic outlook 
 due to reducing volumes     has worsened and is 
 or by driving customers     dependent                      *    Hedging exposure to commodity costs and pricing 
 to adopt cheaper products   on the extent to which              initiatives to offset inflationary cost pressures. 
 or formats for sending      the global economy recovers 
 letters and parcels.        following the pandemic. 
                             A prolonged war in Ukraine     *    Executing an efficiency programme to build resilience 
                             could have an adverse               into the operating model and agility to respond to 
                             effect on our costs,                revenue and cost headwinds. 
                             supply chain, business 
                             confidence and customer 
                             behaviour, which will          *    Ongoing monitoring of political and policy changes 
                             impact letter and parcel            and regular engagement with politicians and policy 
                             volumes.                            makers, as appropriate. 
                             Prolonged fiscal tightening, 
                             including increased business 
                             rates, employment taxes, 
                             tax policies including 
                             subcontractors and a 
                             potential online UK sales 
                             tax, could increase our 
                             costs or impact consumer 
                             confidence, which could 
                             affect parcel and letter 
                             volumes. 
---------------------------  ----------------------------  ----------------------------------------------------------- 
3. Major breach of information security, data protection regulation 
 and/or cyber-attack - High risk 
---------------------------------------------------------------------------------------------------------------------- 
Due to the nature of         Stable risk 
our business, we collect,    Given the evolving nature,      *    Continually investing in cyber resilience including 
process and store            sophistication and                   enhancing our cyber control capabilities across our 
confidential                 prevalence                           technology estate to protect our customers, 
business and personal        of these threats, including          colleagues, services and assets. 
information. As a result,    those presented by the 
we are subject to a range    war in Ukraine, the hybrid 
of laws, regulations         workforce driven by the         *    Strengthening our preparedness to quickly detect and 
and contractual obligations  pandemic and an increasing           respond to threats before they become incidents, 
around the governance        reliance on technology               including ransomware. 
and protection of various    and data for operational 
classes of data to protect   and strategic purposes, 
our customers, employees,    this continues to be            *    Ongoing assurance of organisational and technical 
shareholders and suppliers.  a principal risk.                    measures, including disaster recovery and assessment 
In common with all major     We also recognise that               of third-party supplier controls. 
organisations, we are        in a business with more 
the potential target         than 161,000 people and 
of cyber-attacks that        large quantities of             *    Promoting good behaviours and stressing the 
could threaten the           documentation,                       importance of maintaining vigilance through regular 
confidentiality,             there is a possibility               communication, training and awareness across our 
integrity and availability   of human error in the                workforce. 
of data, and trigger         protection of data. 
material service and/or 
operational interruption.                                    *    Encouraging an open and prompt reporting culture so 
Also, a major breach                                              appropriate remedial action can be taken as soon as 
of information security,                                          possible. 
data protection laws 
and regulations and/or 
cyber-attack could                                           *    Data privacy and protection policies and compliance 
adversely                                                         programme, which includes assessment and monitoring 
impact our reputation,                                            of data risks across the global business. 
resulting in financial 
loss, regulatory action, 
business disruption and 
loss of stakeholder 
confidence. 
---------------------------  ----------------------------  ----------------------------------------------------------- 
 
  4. Customer expectations and our responsiveness to market changes 
  - High risk 
---------------------------------------------------------------------------------------------------------------------- 
Failure to deliver against   Stable risk                   We are becoming more customer 
existing and changing        The pandemic and, in          centric and we are responding 
customer needs and           particular, the rapid         to market changes by: 
expectations                 growth in online business      *    Restoring Royal Mail's quality of service. 
(including quality of        and increased parcel 
service) could impact        volumes, has accelerated 
the demand for our products  structural changes in          *    Driving new product development based on customer 
and services.                our markets. To remain              feedback, including increasing the proportion of 
Our success at growing       competitive, it is more             products that can be tracked and other incentives to 
new areas of business        important than ever that            encourage reconnection with letters and mail 
is dependent on identifying  we meet customers' evolving         services. 
profitable and sustainable   expectations, such as 
areas of growth and having   the increasing importance 
in place appropriate         of ESG (see risk 8.            *    Leveraging our UK footprint as the sole designated 
structures to support        Environmental                       Universal Service Provider. 
transformation.              and sustainability), 
                             and continue to harness 
                             growth opportunities           *    Delivering sustainable growth and customer innovation 
                             in a sustainable and                through the Accelerate GLS strategy. 
                             profitable way. 
                             The economic outlook 
                             has worsened as a result       *    Growing new areas of business and expanding service 
                             of the pandemic and a               offerings. 
                             prolonged war in Ukraine 
                             could further affect 
                             business confidence and        *    Pricing/surcharge opportunities that do not inhibit 
                             consumer spending, which            value growth. 
                             in turn could adversely 
                             affect parcel and letter 
                             volumes. 
---------------------------  ----------------------------  ----------------------------------------------------------- 
5. Industrial action - High risk 
---------------------------------------------------------------------------------------------------------------------- 
There is extensive trade     Increasing risk 
union representation         The success of Royal           *    Royal Mail CEO, Group CFO and members of the Royal 
across our UK workforce,     Mail is reliant on the              Mail Executive Board regularly meet with union 
with strong and active       dedication of its people            leaders. 
trade unions.                and the delivery of its 
One or more material         transformation programme. 
disagreements or disputes    One of our strategic           *    Joint implementation of the Pathway to Change 
could result in widespread   priorities is to rebuild            agreement. 
localised or national        trust and develop positive 
industrial action.           working relationships 
We may be unable to obtain   with our people and unions.    *    Regular engagement with CWU and Government to 
the necessary legislative    As a result of the                  introduce the necessary legislative and regulatory 
changes to enable us         increasingly                        changes for RMCPP. 
to implement the Royal       uncertain external 
Mail Collective Pension      environment, 
Plan (RMCPP), as agreed      competition and growing        *    Engagement with unions on the 2022 pay deal and the 
with the CWU.                inflationary costs, the             operational management restructure. 
Industrial action could      transformation of the 
cause material disruption    Royal Mail business needs 
to our UK business and       to be accelerated. This,       *    Use of the dispute resolution procedures to reach 
likely result in an          together with a rise                agreement. 
immediate                    in the cost of living, 
and potentially ongoing      is increasing the risk 
significant loss of Group    of industrial action.          *    Operational contingency plans in the event of 
revenue. It may also         The Pension Schemes Bill,           industrial action. 
affect Royal Mail's ability  of which RMCPP is a part, 
to restore Quality of        received Royal Assent 
Service and meet targets     in February 2021 and           *    Continuing to rebuild trust with our employees 
prescribed by Ofcom,         is now allowed by law.              through engagement, communication and supporting them 
which may lead to            However, further regulatory         in the delivery of the business goals. 
enforcement                  changes and approvals 
action, fines and loss       will be required by the 
of customers.                Government/Pensions 
                             Regulator 
                             before our scheme can 
                             be established. 
                             CWU submitted a pay claim 
                             in February 2022 and 
                             we have entered discussions. 
                             We have made an offer 
                             on pay which CWU has 
                             rejected. CWU has informed 
                             Royal Mail it is making 
                             preparations for a possible 
                             ballot for industrial 
                             action. We have entered 
                             into our formal Dispute 
                             Resolution Procedures 
                             to try to secure agreement. 
                             Unite/CMA have informed 
                             us of their intention 
                             to issue a consultative 
                             ballot to test their 
                             members' will for any 
                             further action in relation 
                             to the operational 
                             management 
                             restructure announced 
                             in January 2022. This 
                             does not constitute a 
                             formal ballot for any 
                             industrial action. 
---------------------------  ----------------------------  ----------------------------------------------------------- 
6. Talent - workforce for the future (previously called 'Capability 
 - talent and strategic workforce planning') - Moderate risk 
---------------------------------------------------------------------------------------------------------------------- 
Our performance, operating   Stable risk 
results and future growth    The Royal Mail                 *    Regular Senior Management talent reviews and 
depend on our ability        transformation                      succession planning supported by external recruitment 
to attract and retain        programme, together with            where key skills are required. 
talent with the appropriate  the structural changes 
skills and expertise         in the letter and parcel 
across the Group.            delivery markets, is           *    Leadership development programmes to support 
In Royal Mail, workforce     changing the nature of              transformation and strengthening performance 
planning could be adversely  some roles and creating             management. 
impacted by an ageing        the need for new and 
workforce and a reduction    different skills. 
in available workforce       We need to upskill and         *    Diversity, equality and inclusion (DEI) initiatives 
due to socio-economic        develop our existing                to accelerate DEI across our teams. 
factors, demographic         workforce, and attract 
change and increasing        new people with the right 
digitalisation.              capabilities and behaviours    *    Implementation of a workforce plan aligned with the 
A high level of employee     to support the delivery             strategy and commercial outlook. 
trust and engagement         of our strategic ambitions. 
is essential if we are       As GLS' business continues 
to deliver Royal Mail's      to grow, the need for          *    Generational change initiatives including Postal 
transformation and growth    strong and effective                Apprenticeships and the Royal Mail Academy. 
strategy.                    management in all regions 
                             are essential. 
                                                            *    Regular trust and employee engagement surveys, 
                                                                 improved communications and use of digital tools. 
 
 
                                                            *    GLS regional management succession planning. 
---------------------------  ----------------------------  ----------------------------------------------------------- 
 
  7. Our UK regulatory framework - Moderate risk 
---------------------------------------------------------------------------------------------------------------------- 
The continuing structural    Stable risk                   We are engaged in a number 
decline in addressed         Given the scale of our        of activities that are 
letter volumes, and broader  transformation in Royal       focused on securing the 
changes in the parcels       Mail and the pace of          future sustainability 
market poses significant     change in the postal          of the USO, including: 
risks to the financial       sector, we need the right      *    Active participation in Ofcom's consultation process, 
sustainability of the        regulatory framework                including providing detailed, evidence-based 
Universal Service            in place to make a                  submissions to Ofcom. 
Obligation                   reasonable 
(USO).                       return on our investment 
There is a further risk      and have the commercial        *    Executing the Royal Mail transformation plan to 
that Ofcom fails to change   flexibility to innovate             underpin the sustainability of the USO. This will 
and modernise the            and keep pace with the              help us become even more efficient and better placed 
regulatory                   market and consumer needs.          to respond to changing customer demands. 
framework in order to        Ofcom is undertaking 
preserve the scale and       a review of postal 
relevance of the postal      regulation                     *    Working with Ofcom, Government and the unions more 
USO, or choses to change     and published its                   broadly to ensure that the Royal Mail business is 
the framework in a way       consultation                        financially sustainable. 
which impacts our customer   in December 2021. 
strategy or is commercially  Ofcom has stated that 
disadvantageous to Royal     the current system is          *    Extensive stakeholder engagement programme during the 
Mail.                        generally working well              review of postal regulation. 
                             for people and businesses 
                             who use postal services, 
                             and we support Ofcom's 
                             proposal not to extend 
                             Access regulation. However, 
                             we are disappointed that 
                             Ofcom has not taken this 
                             opportunity to allow 
                             tracking on USO services 
                             as consumers increasingly 
                             demand more visibility 
                             over their deliveries. 
                             We expect the outcome 
                             in Q2 2022-23, with any 
                             resulting changes likely 
                             to take effect from April 
                             2023. 
---------------------------  ----------------------------  ----------------------------------------------------------- 
8. Environmental and sustainability - Moderate risk 
---------------------------------------------------------------------------------------------------------------------- 
Transition risks:            Stable risk 
As our customers and         Demonstrating leadership       *    Development of a Group-wide ESG framework. 
stakeholders seek to         on ESG issues, including 
adapt to climate change,     the environmental impact 
demand is increasing         of our activities, is          *    Executing enhanced Royal Mail and GLS environmental 
for more sustainable         the right thing to do.              strategies including accelerated ambitions for 
products and services.       It is also essential                decarbonisation. 
The cost of operations       if we are to achieve 
could increase as we         competitive advantage, 
adapt to government and      create value and deliver       *    Investing in zero- and low-emission vehicles and 
regulatory changes in        our strategy.                       installing efficient equipment across our property 
response to a drive to       Delivering a sustainable            estate. 
net zero emissions and       network has been embedded 
air quality targets for      in Royal Mail and GLS' 
towns and cities.            strategies for some time.      *    Investing in innovative technologies, such as 
In common with all major     We are increasing our               telemetry, and driver training programmes, to improve 
organisations, there         focus in this area. During          operational efficiency and reduce our fuel 
is a risk of reputational    the year we developed               consumption. 
damage and/or loss of        Group ESG Principles 
revenue if we do not         and updated Royal Mail 
meet stakeholder             and GLS' environmental         *    Opening new EcoHubs with renewable energy generation 
expectations                 strategies.                         and sustainable infrastructure across GLS' network. 
for action on climate        We continue to review 
change.                      our business strategies 
Physical risks:              to address and manage          *    Engaging our people in our efforts to become more 
An increase in the           the most important ESG              efficient and reduce our use of natural resources. 
frequency                    issues, embed these into 
of extreme weather events    our processes and seek 
may result in disruption     to comply with the             *    Reducing our energy and water consumption and 
to our operations and        guidelines                          reducing the amount of waste we generate. 
impact our ability to        of the TCFD for 
meet customer expectations,  environmental 
the USO or other             risks. 
contractual 
requirements. We may 
also see price rises 
as a result of resource 
scarcity, increased 
operational 
costs and required 
investment 
to protect the business 
from extreme weather 
events. 
---------------------------  ----------------------------  ----------------------------------------------------------- 
9. Actual or suspected breaches of material law and/or regulation 
 (previously called 'Competition Act investigation') - Moderate risk 
---------------------------------------------------------------------------------------------------------------------- 
Failure to comply with       Decreasing risk 
relevant material laws       This risk previously            *    Policies, training and guidance to colleagues to 
and regulations that         focused on the competition           raise awareness of risks, required mitigation and 
apply to our business,       law investigation relating           expected standards of conduct. 
including competition,       to the Royal Mail business. 
anti-bribery, Ofcom          It has been broadened 
essential                    and now reflects all            *    Regular assessment of risks and advice by specialist 
conditions and quality       the material laws and                lawyers. 
of service targets, trade    regulations that the 
sanctions and corporate      Group must comply with. 
governance. Actual or        There has been continued        *    Horizon scanning to prepare for legislative changes 
suspected breaches could     focus on controls in                 and developing policies and processes to address 
result in financial loss,    relation to competition              them. 
fines, regulatory            law and as such the overall 
enforcement                  risk to the Group has 
action, criminal charges,    decreased.                      *    Monitoring of compliance and provision of assurance. 
debarment and/or             In May 2021, the Group's 
reputational                 appeal against the 
damage impacting our         Competition                     *    Fostering a culture where colleagues can speak up so 
ability to operate and       Appeal Tribunal's judgement          we can promptly address any issues and stop them 
grow.                        to uphold Ofcom's decision           happening again. 
                             to fine Royal Mail GBP50 
                             million was rejected 
                             by the Court of Appeal          *    Quality of service monitoring and restoration 
                             (CoA), The Group is now              activity. 
                             seeking permission from 
                             the Supreme Court to 
                             appeal the CoA's judgment. 
                             Our quality of service 
                             results for the 2021-22 
                             year showed that the 
                             difficult and exceptional 
                             ongoing impact of COVID-19 
                             had impacted our performance 
                             and Royal Mail did not 
                             meet its regulatory quality 
                             targets. 
---------------------------  ----------------------------  ----------------------------------------------------------- 
 
 
10. Business continuity and operational resilience (previously called 
 'Business continuity and crisis management') - Moderate risk 
---------------------------------------------------------------------------------------------------------------------- 
We may fail to successfully   Stable risk 
 respond to, recover from,    Royal Mail is classified      *    Regular comprehensive reviews of business continuity 
 or reduce the impact         by the Department for              and crisis management governance including 
 of a major threat or         Business, Energy & Industry        operational contingency plans. 
 disruptive incident that     Strategy as critical 
 could cause widespread       national infrastructure 
 operational disruption       and also has a                *    Established functional response teams, comprising 
 and financial loss to        responsibility                     Senior Management and executive leadership, embedded 
 the Group, our customers     to provide sustained               across the business. 
 and our supply chain.        and continued postal 
 This could also impact       services under the USO. 
 on the ability of Royal      The temporary relaxation      *    Tactical arrangements in place to support operational 
 Mail to meet its regulatory  by Ofcom of some Universal         incident management. 
 obligations.                 Service requirements 
                              during the pandemic has 
                              now ended. The pandemic       *    Regular testing of disaster recovery plans and 
                              has been a robust test             alignment with business continuity plans. 
                              of our business continuity 
                              arrangements. 
                              GLS has a growing             *    Ongoing monitoring of operational processes to 
                              geographical                       minimise disruption related to the pandemic whilst 
                              footprint and has an               keeping our people and customers safe. 
                              interconnected 
                              international 
                              network across Europe 
                              and the US. 
----------------------------  ---------------------------  ----------------------------------------------------------- 
11. Health, safety and wellbeing - Moderate risk 
---------------------------------------------------------------------------------------------------------------------- 
A health and safety incident  Increasing risk 
or global health crisis       The health, safety and        *    Policies, procedures, systems and tools, supported by 
could result in the serious   wellbeing of our people,           tailored training and awareness programmes to embed a 
injury, ill health or         customers and members              compliance culture and engage our employees in safety 
death of our people or        of the public is of                improvement. 
members of the public.        paramount 
An incident may lead          importance. 
to criminal prosecution       We have many employees,       *    Monitor health and safety performance metrics and 
or fines by the enforcing     including seasonal staff           undertake regular audits against our systems and 
authority or civil action     and agency workers. We             processes. 
by the injured party          also operate a very large 
resulting in large financial  fleet of vehicles, employ 
losses and/or reputational    a large number of             *    Extensive employee health and wellbeing policies and 
damage.                       contractors                        programmes to support absence and return to 
Within GLS there are          and interact extensively           workplace. 
also health and safety        with members of the public. 
risks associated with         A large proportion of 
subcontractors utilised       our people spend most         *    Continuing to streamline and simplify the various 
across the business.          of their time working              health and safety systems in place to enhance their 
Failure to manage the         outdoors, on foot or               effectiveness. 
health and wellbeing          driving, where the 
of our people could lead      environment 
to reputational damage,       is unpredictable and          *    Group-wide measures to protect and support our 
loss of employee goodwill     more difficult to control.         employees through the pandemic, ensuring necessary 
and financial losses          Due to our wide reach              safety precautions, in line with Public Health 
through increased sickness    and the number of people           England and World Health Organization guidance and 
absence, lower productivity,  affected by the Group's            provision of wellbeing support. 
and failure to deliver        undertakings, the risk 
the USO, civil action         of serious harm to people 
or criminal prosecution.      cannot be totally             *    Communications to employees through a dedicated, 
                              mitigated.                         comprehensive multi -- media campaign. 
                              We acknowledge that every 
                              health and safety incident 
                              has a human impact. 
                              In common with many 
                              businesses, 
                              the pandemic has had 
                              an adverse effect on 
                              short- and long-term 
                              employee absence throughout 
                              the year with peaks in 
                              infection rates, isolation 
                              and NHS delays for routine 
                              procedures. As a result 
                              of these factors, the 
                              overall risk has increased. 
----------------------------  ---------------------------  ----------------------------------------------------------- 
 

Key: change in risk score during the year

   --      Increasing risk - Low to Moderate / Moderate to High risk 
   --    Decreasing risk - Moderate to Low / High to Moderate risk 
   --    Stable risk - No change 

Financial Review

Summary results (GBPm)(1)

 
                                       Reported     Specific  Adjusted(2)   Reported     Specific  Adjusted(2) 
                                       52 weeks    items and     52 weeks   52 weeks    items and     52 weeks 
                                          March      pension        March      March      pension        March 
                                           2022   adjustment         2022       2021   adjustment         2021 
------------------------------------  ---------  -----------  -----------  ---------  -----------  ----------- 
Revenue                                  12,712            -       12,712     12,638            -       12,638 
------------------------------------  ---------  -----------  -----------  ---------  -----------  ----------- 
  Royal Mail                              8,514            -        8,514      8,649            -        8,649 
  GLS                                     4,219            -        4,219      4,040            -        4,040 
  Intragroup revenue(3)                    (21)            -         (21)       (51)            -         (51) 
------------------------------------  ---------  -----------  -----------  ---------  -----------  ----------- 
Operating costs                        (12,128)        (174)     (11,954)   (12,020)         (84)     (11,936) 
------------------------------------  ---------  -----------  -----------  ---------  -----------  ----------- 
  Royal Mail                            (8,272)        (174)      (8,098)    (8,389)         (84)      (8,305) 
  GLS                                   (3,877)            -      (3,877)    (3,682)            -      (3,682) 
  Intragroup costs(3)                        21            -           21         51            -           51 
------------------------------------  ---------  -----------  -----------  ---------  -----------  ----------- 
Operating profit before specific 
 items                                      584        (174)          758        618         (84)          702 
Operating specific items                    (7)          (7)            -        (7)          (7)            - 
Operating profit                            577        (181)          758        611         (91)          702 
Operating profit margin                    4.5%            -         6.0%       4.8%            -         5.6% 
------------------------------------  ---------  -----------  -----------  ---------  -----------  ----------- 
  Royal Mail                                250        (166)          416        271         (73)          344 
  Royal Mail Operating profit 
   margin                                  2.9%            -         4.9%       3.1%            -         4.0% 
  GLS                                       327         (15)          342        340         (18)          358 
  GLS Operating profit margin              7.8%            -         8.1%       8.4%            -         8.9% 
------------------------------------  ---------  -----------  -----------  ---------  -----------  ----------- 
Profit on disposal of property, 
 plant and equipment (non-operating 
 specific item)                              72           72            -         36           36            - 
------------------------------------  ---------  -----------  -----------  ---------  -----------  ----------- 
Net finance costs                          (51)            -         (51)       (38)            -         (38) 
------------------------------------  ---------  -----------  -----------  ---------  -----------  ----------- 
Net pension interest (non-operating 
 specific item)                              64           64            -        117          117            - 
------------------------------------  ---------  -----------  -----------  ---------  -----------  ----------- 
Profit before tax                           662         (45)          707        726           62          664 
------------------------------------  ---------  -----------  -----------  ---------  -----------  ----------- 
Tax (charge)/credit                        (50)           62        (112)      (106)           37        (143) 
------------------------------------  ---------  -----------  -----------  ---------  -----------  ----------- 
Profit after tax                            612           17          595        620           99          521 
------------------------------------  ---------  -----------  -----------  ---------  -----------  ----------- 
 
Earnings per share (basic) 
 - pence                                  61.7p         1.7p        60.0p      62.0p         9.9p        52.1p 
------------------------------------  ---------  -----------  -----------  ---------  -----------  ----------- 
In-year trading cash flow                   519            -          519        770            -          770 
------------------------------------  ---------  -----------  -----------  ---------  -----------  ----------- 
  Royal Mail                                280            -          280        440            -          440 
  GLS                                       239            -          239        330            -          330 
------------------------------------  ---------  -----------  -----------  ---------  -----------  ----------- 
Gross capital expenditure                 (603)            -        (603)      (346)            -        (346) 
------------------------------------  ---------  -----------  -----------  ---------  -----------  ----------- 
  Royal Mail                              (441)            -        (441)      (210)            -        (210) 
  GLS                                     (162)            -        (162)      (136)            -        (136) 
------------------------------------  ---------  -----------  -----------  ---------  -----------  ----------- 
Net debt                                  (985)            -        (985)      (457)            -        (457) 
------------------------------------  ---------  -----------  -----------  ---------  -----------  ----------- 
 

1. Reported results are prepared in accordance with IFRS. In addition, the Group's performance is 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 in the section entitled 'Presentation of results and Alternative Performance Measures.'

2. The Group makes adjustments to reported results under IFRS to exclude specific items and the IAS 19 pension charge to cash difference adjustment. A full reconciliation of reported to adjusted results is explained in the section entitled 'Presentation of results and Alternative Performance Measures.'

3. 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 results

Group and Royal Mail results are for the 52-week period to 27 March 2022. GLS results are for the 12 months to 31 March 2022.

Year-on-year Group revenue grew despite the unusually strong performance seen in the prior year. As we emerged from COVID-19 restrictions, Group parcel revenue declined marginally as non-essential retail reopened. However, parcel revenue is still significantly higher than prior to the pandemic due to an acceleration in customer behaviour towards e-commerce.

In Royal Mail, letter revenue has recovered from the deterioration experienced during the pandemic, albeit this market is still in structural decline with revenue down 7.6% versus the pre-pandemic year.

The pandemic has continued to impact the Group over the last year. At times we experienced elevated absence rates along with inefficiencies whilst social distancing rules were maintained. This impacted our ability to deliver our UK targets on both service quality and the full benefits from operational change activity. We also faced some additional challenges including rising pay costs, labour shortages, the ongoing weakness in the international market and the emergence of the cost of living crisis.

Against this challenging backdrop, reported operating profit before specific items was GBP584 million (2020-21: GBP618 million), GBP34 million lower than the prior year. Operating specific items were a cost of GBP7 million (2020-21: GBP7 million) and non-operating specific items were a credit of GBP136 million (2020-21: credit of GBP153 million).

On a reported basis the Group operating profit margin reduced by 30bps to 4.5%, largely due to the increased pension charge to cash difference adjustment.

Adjusted Group operating profit improved by GBP56 million to GBP758 million (2020-21: GBP702 million) mainly driven by profit improvement in Royal Mail. Adjusted Group operating profit margin improved by 40bps to 6.0%. GLS experienced margin compression primarily as a result of the economic environment. The GLS prior year margin was unusually strong due to lockdowns. Royal Mail delivered margin improvement despite several cost headwinds. These headwinds were more than offset by cost saving initiatives including the successful completion of the management restructure (announced in June 2020).

Reported profit before tax of GBP662 million (2020-21: GBP726 million) comprises a GBP346 million profit in Royal Mail (2020-21: GBP398 million profit) and a GBP316 million profit in GLS (2020-21: GBP328 million profit). Basic reported earnings per share decreased to 61.7 pence (2020-21: 62.0 pence).

 
                                                       52 weeks ending March        % change 
                                                     -------------------------  ---------------- 
                                                                                2022 vs  2022 vs 
Revenue (GBPm)                                          2022  2021(4)  2020(4)     2021     2020 
---------------------------------------------------  -------  -------  -------  -------  ------- 
Group(5)                                              12,712   12,638   10,840     0.6%    17.3% 
---------------------------------------------------  -------  -------  -------  -------  ------- 
Royal Mail                                             8,514    8,649    7,720   (1.6)%    10.3% 
  Total Parcels                                        4,800    5,133    3,702   (6.5)%    29.7% 
     Domestic Parcels (excluding international)(6)     4,021    4,118    2,831   (2.4)%    42.0% 
     International Parcels(7)                            779    1,015      871  (23.3)%  (10.6)% 
  Letters                                              3,714    3,516    4,018     5.6%   (7.6)% 
---------------------------------------------------  -------  -------  -------  -------  ------- 
GLS(8)                                                 4,219    4,040    3,161     4.4%    33.5% 
---------------------------------------------------  -------  -------  -------  -------  ------- 
 
 
                                                       52 weeks ending March        % change 
                                                     -------------------------  ---------------- 
                                                                                2022 vs  2022 vs 
Volume (m units)                                        2022     2021     2020     2021     2020 
---------------------------------------------------  -------  -------  -------  -------  ------- 
Royal Mail 
  Total Parcels                                        1,517    1,735    1,312    (13)%      16% 
     Domestic Parcels (excluding international)(6)     1,365    1,475    1,039     (7)%      31% 
     International Parcels(7)                            152      260      273    (42)%    (44)% 
  Addressed letters (excluding elections)              7,961    7,718    9,703       3%    (18)% 
---------------------------------------------------  -------  -------  -------  -------  ------- 
GLS                                                      870      838      667       4%      30% 
---------------------------------------------------  -------  -------  -------  -------  ------- 
 

4. The prior years' letter and parcel revenue split has been re-presented to reflect a reallocation of international revenue between letters and parcels.

5. Royal Mail and GLS revenue does not equal Group revenue due to the elimination of intragroup trading (2021-22: GBP21 million, 2020-21: GBP51 million, 2019-20: GBP41 million).

   6.    Domestic Parcels excludes import and export for both Royal Mail and Parcelforce Worldwide. 
   7.    International includes import and export for Royal Mail and Parcelforce Worldwide. 

8. The results for the full year 2021-22 include four months of contribution from the acquisition of Rosenau Transport on 1 December 2021. The prior year does not include any contribution.

Group revenue grew by 0.6% in the year with parcel revenue accounting for 71% of total revenue (2020-21: 72%), a slight reduction to the prior year due to the recovery of letter revenue and the decline in Royal Mail parcel revenue as a result of the strong comparative. Compared with the pre-pandemic year (2019-20), Group revenue grew by 17.3%.

Segment - Royal Mail

Royal Mail adjusted operating profit improved 20.9% to GBP416 million (2020-21: GBP344 million). Adjusted operating profit margin was 4.9%, a 90 bps improvement on the prior year primarily due to the delivery of a number of cost saving initiatives which offset some of the headwinds experienced in the year. Reported operating profit was GBP250 million (2020-21: GBP271 million), the deterioration was largely due to an increase in the pension charge to cash difference adjustment.

Revenue

Overall, Royal Mail revenue reduced slightly on the prior year (1.6%) as pandemic restrictions were relaxed and our traffic mix adjusted.

Parcels revenue represented 56% of total Royal Mail revenue, compared with 59% in the prior year, driven by the recovery of letter revenue in the year.

Parcels

Total parcel revenue was down year-on-year by 6.5% with volumes down 13%; however, the comparative year was unusually strong as it included several months of national and local lockdowns when non-essential retail was closed. This drove e-commerce activity and parcel volumes. During the current year, non-essential retail was closed for just two weeks. Revenue benefitted from a positive price mix which partially mitigated the decline in volumes.

Domestic parcels (excluding international) volumes were down 7% driven by the relaxation of pandemic restrictions. Domestic parcels (excluding international) revenue was down 2.4% at a lower rate than volumes due to positive product/channel mix.

We saw a significant year-on-year increase in COVID-19 test kit revenue. COVID-19 test kits accounted for around 7% of total parcel volumes.

Royal Mail's premium products, Tracked 24(R) /48(R) and Tracked Returns(R) performed well with volumes growing 17% (2020-21: 79% growth). Excluding the effect of test kits, Tracked 24(R) /48(R) and Tracked Returns(R) , volume growth was flat (2020-21: 74% growth).

As previously disclosed, International has seen significant headwinds with volumes down 42% year-on-year. In the main, this decline has been driven by external factors including reduced air freight capacity and the transition to a new trade deal with the European Union.

Parcelforce Worldwide revenue, which is included in the domestic and international lines above, reduced as a result of the reopening of non-essential retail. The impact of Britain's withdrawal from the European Union also impacted cross-border volumes.

Letters

Total letter revenue grew 5.6% versus the prior year, with volumes for addressed letters excluding elections up 3%. These increases are against a prior year base which included sharp declines seen at the start of the pandemic.

The pandemic particularly impacted Advertising Mail. The recovery in Advertising Mail volumes in the current year was therefore more pronounced, with growth of 30%. This was partially offset by a marginal decline in Business mail volumes (down 1%) as they reverted to their pattern of structural decline experienced prior to the pandemic. Business mail revenue benefitted from positive pricing actions.

Comparison with pre-pandemic year (2019-20)

Parcels

Total parcel revenue was up 29.7% versus the pre-pandemic year with volumes up 16%. This has been driven by the acceleration in customer behaviour to e-commerce. The current year also includes the delivery of COVID-19 test kits; there were no test kit volumes included in 2019-20.

Compared with 2019-20, domestic parcels (excluding international) revenue increased by 42.0% with volumes up by 31%.

International volumes have decreased significantly versus the pre-pandemic year, down 44%. In the main this has been driven by the external factors outlined previously.

Letters

Total letter revenue is down 7.6% versus the pre-pandemic year with volumes for addressed letters excluding elections down 18% in the same period. This is reflective of the ongoing structural decline in the letters market. The 2019-20 year also included the European Parliamentary election and the UK General election; if the effects of the elections are removed then the decline in letter revenue is significantly reduced.

Advertising mail volumes declined 12% versus 2019-20 with low AUR unaddressed advertising letter volumes, down 9%, driven by the impact of the pandemic and ongoing e-substitution.

Business mail volumes were lower than 2019-20 levels by 17%.

Adjusted operating costs(2)

 
                                                 Adjusted   Adjusted 
                                                 52 weeks   52 weeks 
                                                    March      March 
(GBPm)                                               2022       2021  % change 
----------------------------------------------  ---------  ---------  -------- 
People costs                                      (5,583)    (5,619)    (0.6)% 
----------------------------------------------  ---------  ---------  -------- 
  People costs excluding voluntary redundancy     (5,502)    (5,510)    (0.1)% 
  Voluntary redundancy costs                         (81)      (109)   (25.7)% 
----------------------------------------------  ---------  ---------  -------- 
Non-people costs                                  (2,515)    (2,686)    (6.4)% 
----------------------------------------------  ---------  ---------  -------- 
  Distribution and conveyance costs                 (971)    (1,054)    (7.9)% 
  Infrastructure costs                              (802)      (825)    (2.8)% 
  Other operating costs                             (742)      (807)    (8.1)% 
----------------------------------------------  ---------  ---------  -------- 
Total                                             (8,098)    (8,305)    (2.5)% 
----------------------------------------------  ---------  ---------  -------- 
 

2. The Group makes adjustments to reported results under IFRS to exclude specific items and the IAS 19 pension charge to cash difference adjustment. A full reconciliation of reported to adjusted results is explained in the section entitled 'Presentation of results and Alternative Performance Measures.'

Total adjusted operating costs decreased by 2.5% year-on-year. We estimate that total COVID-19 related costs reduced by GBP53 million to GBP92 million. Pay inflation and other operational cost increases were more than offset by cost saving initiatives including the successful completion of our management restructure (announced in June 2020) and non-people related cost reduction programmes. These initiatives, in addition to the benefits derived from our Pathway to Change agreement, delivered cost savings of c.GBP285 million in the year.

People costs

People costs excluding voluntary redundancy costs were broadly flat, with the decline in voluntary redundancy costs mainly due to a GBP93 million charge in the prior year for the management restructure announced in June 2020 compared with GBP70 million in the current year for a further restructuring announced in January 2022. This programme looks to streamline operational management and improve focus on performance at a local level.

Transformation costs declined by GBP6 million.

The management restructure programme (announced in June 2020) delivered in line with our expectations, with sustainable benefits of GBP115 million in the year.

We delivered GBP59 million of efficiencies from the Pathway to Change agreement. This was at the lower end of the revised guidance provided on 25 January 2022. Although this was disappointing against the initial expectation of over GBP100 million, the shortfall was almost entirely driven by the challenges in the delivery function. Changes implemented in Processing and Logistics were successful.

Despite higher absence rates during the peak period (November 2021 to January 2022) when the Omicron variant was prevalent and during the 'Ping-demic' in July, COVID-19 people costs were down GBP18 million year-on-year to GBP62 million. The reduction is due to prior year absence rates being particularly high when the pandemic began. Non-COVID absences were up year-on-year. In the current year the average total absence rate was 8.0% compared with 8.5% in the prior year. The highest single day of absence was 12.1% in the current year compared with 18.9% in the prior year.

Pay costs increased by GBP122 million year-on-year. This includes the cost of the frontline 1% pay award, effective from the start of FY 2021-22, costs for the one hour reduction in the working week, which was largely implemented in the second half of the year, along with costs associated with working time regulation holiday pay, and costs associated with managerial pay awards.

Productivity was down 0.2% year-on-year as the business was slower to take out costs following the reopening of the UK High Street. The reopening occurred more rapidly than we anticipated and had a more immediate impact on parcel volumes. Additionally we failed to deliver all the targeted operational benefits from Pathway to Change. These factors offset the cost saving initiatives, resulting in broadly flat people costs.

Non-people costs

Non-people costs decreased by 6.4% versus the prior year.

Our two-year non-people cost savings plan, which aimed to maintain flat non-people costs, excluding depreciation and volume related costs, delivered in full, with GBP112 million of benefits delivered in 2021-22.

Within non-people costs, we estimate the costs associated with the pandemic to be GBP30 million (2020-21: GBP65 million). The prior year COVID-19 non-people costs mainly related to the purchase of protective equipment to safeguard our frontline employees. In the current year, costs have been incurred in order to maintain social distancing measures, including investment in additional vehicle hires and fuel to support the increased number of fleet.

Distribution and conveyance costs decreased by 7.9% driven by lower international volumes. As a result, terminal dues were GBP72 million lower, year-on-year. This decrease has been partially offset by the additional costs outlined above. Total diesel and jet fuel costs increased to GBP191 million (2020-21: GBP187 million) due to the impact of the unhedged volume, which is subject to spot prices.

Infrastructure costs decreased year-on-year, of which depreciation and amortisation costs were c.GBP20 million lower. This was driven by the comparative including accelerated depreciation and amortisation following a review of our investment portfolio. Before these adjustments, underlying depreciation was broadly flat.

Other operating costs decreased by 8.1%, largely driven by the decrease in COVID-19 costs discussed above. Transformation programme costs of GBP58 million (2020-21: GBP45 million) are also included in other operating costs.

Segment - GLS(8)

 
                                           March    March 
Summary results(9) (GBPm)                   2022     2021  % change 
---------------------------------------  -------  -------  -------- 
Revenue                                    4,219    4,040      4.4% 
---------------------------------------  -------  -------  -------- 
Operating costs                          (3,877)  (3,682)      5.3% 
---------------------------------------  -------  -------  -------- 
Operating profit before specific items       342      358    (4.5)% 
---------------------------------------  -------  -------  -------- 
(EURm) 
---------------------------------------  -------  -------  -------- 
Revenue                                    4,959    4,525      9.6% 
---------------------------------------  -------  -------  -------- 
Operating costs                          (4,557)  (4,124)     10.5% 
---------------------------------------  -------  -------  -------- 
Operating profit before specific items       402      401      0.2% 
---------------------------------------  -------  -------  -------- 
 

8. The results for the full year 2021-22 include four months of contribution from the acquisition of Rosenau Transport on 1 December 2021. The prior year does not include any contribution.

9. 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'. As the pension charge to cash difference is not applicable to GLS, the operating profit before specific items is the same on a reported and adjusted basis, and thus no separate adjusted measures have been presented.

Operating profit before specific items in Euro terms was broadly flat despite revenue growth. Margin deteriorated by 80 bps, to 8.1%, due to operational cost pressures including general inflation and driver shortages across most markets. Unusually strong profits were also made in the prior year during the initial lockdown period.

In Sterling terms, operating profit before specific items was GBP342 million (2020-21: GBP358 million). Foreign exchange movements adversely impacted revenue by GBP207 million and favourably impacted costs by GBP191 million resulting in a net reduction to operating profit of GBP16 million.

Revenue

Revenue increased by 4.4% in Sterling terms (9.6% in Euro terms). Excluding acquisitions, revenue was up 3.3%, in Sterling terms, driven by growth in domestic and international volumes, higher freight revenue and better pricing. Revenue grew despite the unusually strong performance in the previous year. Revenue growth was achieved in almost all markets, with good performances in Eastern Europe, the US, Canada, Italy, France, Germany and Spain. GLS' European markets represented 89.6% of total revenue (2020-21: 90.8%), with the North American market contributing 10.4% (2020-21: 9.2%).

Volumes were up 4%, driven by recovery of B2B volumes, with B2C volumes also higher but with a lower growth rate than the prior year. B2C volume share was 55% compared with 57% in the prior year. GLS domestic and international volumes grew by 4% and 5% respectively. International volume growth was impacted by Britain's withdrawal from the European Union, which led to reduced parcel flows between Europe and the UK. Excluding UK traffic, export volume growth was double-digit.

Operating costs

 
                                        March    March 
(GBPm)                                   2022     2021  % change 
------------------------------------  -------  -------  -------- 
People costs                            (908)    (851)      6.7% 
------------------------------------  -------  -------  -------- 
Non-people costs                      (2,969)  (2,831)      4.9% 
------------------------------------  -------  -------  -------- 
  Distribution and conveyance costs   (2,606)  (2,480)      5.1% 
  Infrastructure costs                  (257)    (249)      3.2% 
  Other operating costs                 (106)    (102)      3.9% 
------------------------------------  -------  -------  -------- 
Total                                 (3,877)  (3,682)      5.3% 
------------------------------------  -------  -------  -------- 
 

Total reported operating costs in Sterling terms increased by 5.3%, or 4.2% excluding acquisitions. Cost increases in Euro terms were around 500 bps higher than the reported increases in Sterling due to the strengthening of Sterling during the year.

Costs were impacted by significant increases in inflation rates during the year in the markets in which GLS operates. A combination of higher fuel costs, wage inflation and driver shortages all contributed to increases in subcontractor costs for collection, delivery and line-haul services. The impact from higher minimum wages (for example in Germany) and rising utility costs also resulted in an increase in the GLS cost base. The reported increase in Euro terms is presented below.

 
                                        March    March 
(EURm)                                   2022     2021  % change 
------------------------------------  -------  -------  -------- 
People costs                          (1,067)    (954)     11.8% 
------------------------------------  -------  -------  -------- 
Non-people costs                      (3,490)  (3,170)     10.1% 
------------------------------------  -------  -------  -------- 
  Distribution and conveyance costs   (3,064)  (2,777)     10.3% 
  Infrastructure costs                  (302)    (279)      8.2% 
  Other operating costs                 (124)    (114)      8.8% 
------------------------------------  -------  -------  -------- 
Total                                 (4,557)  (4,124)     10.5% 
------------------------------------  -------  -------  -------- 
 

People costs

People costs increased by 11.8%, or 9.6% excluding acquisitions, due to a combination of factors including 4% higher volumes, higher unit operational labour costs driven by wage inflation across GLS' markets, and further investments in the organisation to support the rollout of our Accelerate strategy.

Non-people costs

Non-people costs increased by 10.1%, or 9.3% excluding acquisitions. Distribution and conveyance costs were up 10.3%, or 9.7% higher excluding acquisitions, driven by the 4% increase in volumes and higher sub-contractor rates for collection, delivery and line-haul services due to inflationary effects. Infrastructure and other operating costs increased by 8.2% and 8.8% respectively (5.4% and 7.9% respectively excluding acquisitions), principally due to higher marketing costs related to initiatives to raise awareness of the GLS brand and higher depreciation associated with increased capital expenditure.

Country overview

The following individual market summaries detail revenue growth in Euro terms.

In Germany, the largest GLS market by revenue, revenue grew by 8.1%, driven by a combination of better pricing and higher volumes. Operating profit decreased due to the operational cost pressures. Minimum wage increases of 25% will be phased in between 1 January 2022 and 1 October 2022, and as a result we implemented strong price increases on 1 January 2022 to help mitigate cost pressures.

GLS Italy revenue grew by 8.8%, driven by higher volumes and better pricing. Prices benefited from a recovery in B2B volumes with a higher average weight. Operating profit improved compared with the prior year, which represented a strong performance.

GLS Spain revenue grew by 7.7%, driven by higher domestic volumes. Operating profit was slightly below the prior year, with some margin compression resulting from higher unit operational costs.

GLS France revenue grew by 8.8%, benefiting from higher domestic volumes and better pricing. Volume growth was driven by higher B2B volumes, which compensated for a decline in B2C. Losses narrowed further in 2021-22, demonstrating that the strong progress achieved in reducing losses in the prior year has been cemented.

There was continued strong performance in Eastern Europe, with revenues up 13.3% and good growth in B2C volumes.

In the US, revenue grew by 11.1% driven by higher B2C volumes, better pricing and higher freight revenues. Higher unit operational costs, driven by a shortage of drivers which impacted final-mile and line-haul costs, and inflationary pressures, impacting the general cost base, resulted in financial performance below the prior year and an overall loss. Measures focused on improving unit operational costs and the quality of revenue, including yield management activities, are underway.

In Canada, the acquisition of Rosenau Transport was completed on 1 December 2021, increasing significantly the scale of our operations in North America. The integration of Rosenau with our pre-existing business Dicom to secure synergies is underway. Rosenau Transport to date is performing in line with expectation. GLS Canada revenue increased by 16.7% on an organic basis, benefiting from good growth in parcel volumes, higher freight revenues as well as improved pricing. The business continues to perform well, delivering margins above the group average.

Revenue growth in GLS' other developed European markets was 3.9%. Performance was negatively impacted by lower volumes due to Britain's withdrawal from the European Union and the highly competitive nature of these mature markets.

Other developing markets, where GLS has a high exposure to B2C, continued to grow strongly with overall revenue growth of 13.3% in the year. Particularly good growth rates were achieved in Hungary, the Czech Republic and Croatia.

Other Group financial performance measures

Specific items and pension charge to cash difference adjustment

 
                                                             52 weeks  52 weeks 
                                                                March     March 
(GBPm)                                                           2022      2021 
-----------------------------------------------------------  --------  -------- 
Pension charge to cash difference adjustment (within 
 people costs)                                                  (174)      (84) 
Operating specific items 
  Legacy/other items                                                9        12 
  Amortisation of intangible assets in acquisitions              (16)      (19) 
-----------------------------------------------------------  --------  -------- 
Total operating specific items                                    (7)       (7) 
-----------------------------------------------------------  --------  -------- 
Non-operating specific items 
  Profit on disposal of property, plant and equipment              72        36 
  Net pension interest                                             64       117 
-----------------------------------------------------------  --------  -------- 
Total non-operating specific items                                136       153 
-----------------------------------------------------------  --------  -------- 
Total specific items and pensions adjustment before 
 tax                                                             (45)        62 
-----------------------------------------------------------  --------  -------- 
Total tax credit on specific items and pensions adjustment         62        37 
-----------------------------------------------------------  --------  -------- 
 

The pension charge to cash difference adjustment largely comprises the difference between the IAS 19 income statement pension charge rate of 24.6% (2020-21: 19.5%) for the Defined Benefit Cash Balance Scheme (DBCBS) from 29 March 2021 and the actual cash payments agreed with the Trustee of 15.6% (2020-21: 15.6%). The charge was GBP174 million in the year (2020-21: GBP84 million), GBP90 million higher than in 2020-21. The increase in the IAS 19 pension charge rate is due to the decrease in the net discount rate (versus CPI) between March 2020 and March 2021.

The legacy items largely relate to an GBP11 million credit (2020-21: GBP16 million credit) in respect of Industrial Diseases claims as a result of the use of updated models issued by the Institute and Faculty of Actuaries' Asbestos Working Party in late 2021, along with an increase in the discount rate versus the prior year. The prior year amount largely related to a partial release of the Industrial Diseases provision after it was re-assessed following indicative guidance published by the Institute and Faculty of Actuaries' Asbestos Working Party in advance of their full update.

Amortisation of acquired intangible assets of GBP16 million (2020-21: GBP19 million) largely relates to acquisitions made by GLS in recent years in Canada, Spain, the US and Italy.

The profit on disposal of property, plant and equipment of GBP72 million (2020-21: GBP36 million) primarily relates to the sale of Plots E, F and G at the Nine Elms development site. The prior year profit largely related 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).

Net pension interest credit of GBP64 million (2020-21: GBP117 million) is calculated by reference to the net pension surplus at the start of the financial year. The decrease in the year of GBP53 million is as a result of a lower overall pension surplus and lower discount rate used at 28 March 2021, compared with 29 March 2020.

The tax credit of GBP62 million (2020-21: GBP37 million) includes a net credit of GBP30 million (2020-21: GBP37 million) in relation to the tax effect of certain specific items and the pension charge to cash difference. The balance also includes a net credit of GBP32 million (2020-21: GBPnil) in relation to the remeasurement of certain UK deferred tax assets and liabilities to the future UK corporation tax rate of 25%.

Net finance costs

Reported net finance costs of GBP51 million (2020-21: GBP38 million) comprise interest on bonds (including cross-currency swaps) of GBP24 million (2020-21: GBP24 million), interest/fees on the bank syndicate loan facility of GBP2 million (2020-21: GBP6 million), interest on leases of GBP29 million (2020-21: GBP26 million) and other net interest payable of GBP2 million (2020-21: GBP1 million receivable). This is offset by interest income of GBP6 million (2020-21: GBP17 million) which includes GBP1 million (2020-21: GBP12 million) interest on the Royal Mail Pension Plan (RMPP) escrow investments. The value of these investments bounced back in 2020-21 from a sharp fall at the end of 2019-20, causing the high interest income figure in 2020-21.

The bank syndicate loan facility was extended by one year to September 2026; there are no further extension options in the agreement. In the year, the interest reference rate was amended from LIBOR to SONIA(10) (SOFR(11) for any drawings in US Dollars).Interest is compounded daily and a credit adjustment spread (CAS) of between 0.0% and 0.3% is added using the ISDA(12) published five-year historical mean on fixing date (5 March 2021).

The blended interest rate on gross debt, including leases for 2021-22, is approximately 3%. The impact of retranslating the EUR500 million and EUR550 million bonds is accounted for in equity.

10. SONIA - Sterling OverNight Indexed Average.

11. SOFR - Secured Overnight Financing Rate.

12. ISDA - International Swaps and Derivatives Association.

Taxation

The Group's reported effective tax rate is 7.6% (2020-21: 14.6%). This is 11.4% lower than the UK statutory rate of 19%. The difference is mainly due to the remeasurement of deferred tax balances to the future UK statutory rate of 25%, which reduces the effective rate by 4.8%; net pension interest credit, on which there is no tax charge, which reduces the rate by 2.1% and the reduction in uncertain tax provision mainly in respect of patent box claims due to progress in ongoing discussions with UK authorities, which reduces the rate by 3.3%. The effective tax rate is further reduced by 3.6% in relation to profits on operational property disposals which have no tax charge as the profits qualify for reinvestment relief and a Super-deduction capital allowances claim which creates an enhanced credit for qualifying capital expenditure. These amounts are partially offset by higher overseas tax rates in relation to the GLS business, and other items that are not allowable for tax purposes.

The GLS adjusted effective tax rate of 23.6% (20-21: 23.3%), is reflective of higher statutory tax rates in the more profitable GLS countries and is broadly in line with the prior year.

The Royal Mail adjusted effective tax rate of 9.0% (2020-21: 19.6%), is lower than both the prior year and the UK statutory rate mainly due to the reduction in the uncertain tax provision in relation to the patent box claims and the Super-deduction capital allowances claim.

Earnings per share (EPS)

Reported basic EPS was 61.7 pence (2020-21: 62.0 pence) and adjusted basic EPS was 60.0 pence (2020-21: 52.1 pence).

In-year trading cash flow(1)

 
                                          52 weeks ending March      52 weeks ending March 
                                                   2022                       2021 
                                        -------------------------  ------------------------- 
                                          Royal 
(GBPm)                                     Mail      GLS    Group   Royal Mail    GLS  Group 
--------------------------------------  -------  -------  -------  -----------  -----  ----- 
Adjusted operating profit                   416      342      758          344    358    702 
--------------------------------------  -------  -------  -------  -----------  -----  ----- 
Depreciation and amortisation               397      143      540          415    139    554 
--------------------------------------  -------  -------  -------  -----------  -----  ----- 
Adjusted EBITDA                             813      485    1,298          759    497  1,256 
--------------------------------------  -------  -------  -------  -----------  -----  ----- 
Trading working capital movements(13)      (36)       12     (24)         (31)     52     21 
--------------------------------------  -------  -------  -------  -----------  -----  ----- 
Share-based awards (LTIP 
 and DSBP) charge adjustment                  3        -        3            4      -      4 
--------------------------------------  -------  -------  -------  -----------  -----  ----- 
Gross capital expenditure                 (441)    (162)    (603)        (210)  (136)  (346) 
--------------------------------------  -------  -------  -------  -----------  -----  ----- 
Net finance costs paid                     (41)     (11)     (52)         (29)   (12)   (41) 
--------------------------------------  -------  -------  -------  -----------  -----  ----- 
Dividend received from associate 
 undertaking                                  5        -        5            -      -      - 
--------------------------------------  -------  -------  -------  -----------  -----  ----- 
Research and development 
 expenditure credit                           -        -        -            1      -      1 
--------------------------------------  -------  -------  -------  -----------  -----  ----- 
Income tax paid                            (23)     (85)    (108)         (54)   (71)  (125) 
--------------------------------------  -------  -------  -------  -----------  -----  ----- 
In-year trading cash flow(13)               280      239      519          440    330    770 
--------------------------------------  -------  -------  -------  -----------  -----  ----- 
Capital element of operating 
 lease repayments(14)                     (102)     (64)    (166)         (98)   (58)  (156) 
--------------------------------------  -------  -------  -------  -----------  -----  ----- 
Pre-IFRS 16 in-year trading 
 cash flow                                  178      175      353          342    272    614 
--------------------------------------  -------  -------  -------  -----------  -----  ----- 
 

1. Reported results are prepared in accordance with IFRS. In addition, the Group's performance is 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 in the section entitled 'Presentation of results and Alternative Performance Measures.'

13. Trading working capital movements and thus in-year trading cash flow have been re-presented to include deferred revenue movements (including Stamps In The Hands Of the Public (SITHOP)) which were previously presented in other working capital.

14. The capital element of lease payments of GBP192 million (2020-21: GBP188 million) shown in the statutory cash flow is made up of the capital element of operating lease payments of GBP166 million (2020-21: GBP156 million) and the capital element of finance lease payments of GBP26 million (2020-21: GBP32 million).

In-year trading cash flow

In-year trading cash inflow was GBP519 million, compared with GBP770 million in the prior year. This decrease was mainly due to higher capital expenditure in Royal Mail.

In Royal Mail, the current year includes a provision for the management restructure to further streamline operations; however, the majority of the associated cash payments have not been paid and thus the working capital position has benefitted year-on-year. By excluding the effect of the current and prior year restructures (both the cash paid and the provisions raised), the year-on-year working capital movement would be GBP59 million outflow. During the current year deferred revenue on stamps purchased in prior year fell by GBP44 million (2020-21: GBP8 million increase) resulting in a GBP52 million year-on-year outflow which explains the majority of the movement. The reduction in deferred revenue was largely as a result of customer stamp holdings falling back to pre-pandemic trends.

GLS trading working capital inflow reduced by GBP40 million year-on-year. Prior year working capital development benefited positively from higher than normal customer payments in advance of the Easter weekend in March 2021, part of which unwound during 2021-22.

Total gross capital expenditure was GBP603 million (2020-21: GBP346 million), of which GLS spend was GBP162 million (2020-21: GBP136 million). Royal Mail capital expenditure was GBP441 million in total (2020-21: GBP210 million), of which GBP205 million (2020-21: GBP91 million(15) ) was transformational spend. Transformational spend increased as we invested in parcel hubs and automation. Royal Mail maintenance spend increased by GBP117 million to GBP236 million (2020-21: GBP119 million(15) ). This additional spend predominantly relates to vehicle purchases, including GBP74 million in relation to electric vehicles. We are continuing our commitment to invest in Royal Mail infrastructure, road to net zero and innovative product portfolio.

Income tax paid decreased by GBP17 million. Royal Mail income tax paid of GBP23 million was GBP31 million lower than the prior year, mainly due to the effect of the Super-deduction enhanced capital allowances claims. GLS income tax paid of GBP85 million was GBP14 million higher than the prior year as tax assessments relating to the higher profits in the previous year were received.

The capital element of operating lease repayments of GBP166 million (2020-21: GBP156 million) reflects the net impact on in-year trading cash flow as a result of adopting IFRS 16. The increase is due to new leases in the year, notably the Midlands Hub. Excluding the impact of this, in-year trading cash flow was GBP353 million (2020-21: GBP614 million).

15. The comparative transformation and maintenance spend has been re-presented to reflect the reallocation of certain projects from maintenance to transformation following a review of the portfolio.

Net debt(1)

A reconciliation of net debt is set out below.

 
                                                              52 weeks  52 weeks 
                                                                 March     March 
(GBPm)                                                            2022      2021 
------------------------------------------------------------  --------  -------- 
Net debt brought forward at 29 March 2021 and 30 March 
 2020                                                            (457)   (1,132) 
------------------------------------------------------------  --------  -------- 
Free cash flow                                                     420       780 
------------------------------------------------------------  --------  -------- 
  In-year trading cash flow(16)                                    519       770 
  Cash cost of operating specific items                            (4)       (4) 
  Proceeds from disposal of property (excluding London 
   Development Portfolio) plant and equipment                       10         5 
  Acquisition of business interests                              (204)       (4) 
  Cash flows relating to London Development Portfolio               99        13 
------------------------------------------------------------  --------  -------- 
Purchase of own shares                                            (17)         - 
------------------------------------------------------------  --------  -------- 
Movement in GLS client cash(17)                                    (5)        20 
------------------------------------------------------------  --------  -------- 
New or increased lease obligations under IFRS 16 (non-cash)      (380)     (173) 
------------------------------------------------------------  --------  -------- 
Foreign currency exchange impact                                    21        48 
------------------------------------------------------------  --------  -------- 
Share buyback                                                    (201)         - 
------------------------------------------------------------  --------  -------- 
Dividends paid to equity holders of the Parent Company           (366)         - 
------------------------------------------------------------  --------  -------- 
Net debt carried forward                                         (985)     (457) 
------------------------------------------------------------  --------  -------- 
Operating leases(18)                                             1,292     1,079 
------------------------------------------------------------  --------  -------- 
Pre-IFRS 16 net cash(19)                                           307       622 
------------------------------------------------------------  --------  -------- 
 

1. Reported results are prepared in accordance with IFRS. In addition, the Group's performance is 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 in the section entitled 'Presentation of results and Alternative Performance Measures.'

16. In-year trading cash flow has been re-presented following the re-allocation of deferred revenue (including SITHOP) from other working capital to trading working capital to reflect the trading nature of this balance. GLS client cash movements, which were previously disclosed in other working capital are now presented separately outside of free cash flow.

17. GLS client cash movements are presented as part of the working capital movements line in the statutory cashflow.

18. This amount represents leases that would not have been recognised on the Balance Sheet prior to the adoption of IFRS 16.

19. This measure is considered as the Group's banking covenants are calculated on a pre-IFRS 16 basis.

The cash cost of operating specific items was an outflow of GBP4 million (2020-21: GBP4 million) consisting mainly of Industrial Diseases claims and National Insurance related to employee free share payments.

Acquisition of business interests of GBP204 million relates mainly to the acquisition of Rosenau Transport. The prior year balance of GBP4 million related to deferred consideration in relation to prior period acquisitions of Mountain Valley Express (MVE) and Mountain Valley Freight Solutions.

The net cash inflows relating to the London Development Portfolio were GBP99 million (2020-21: GBP13 million).

The amount of GLS client cash held at 27 March 2022 was GBP36 million (2020-21: GBP41 million).

New or increased lease obligations under IFRS 16 of GBP380 million (2020-21: GBP173 million) relate to additional lease commitments that were entered into during the year. Property lease additions, modifications and acquisitions totalled GBP335 million (2020-21: GBP121 million), of which GBP81 million relates to the Midlands hub; GBP148 million relates to 243 Royal Mail property rent reviews, lease regears and renewals (a larger amount than previous years due to the phasing of lease contracts); GBP24 million is for property leases taken on as part of the Rosenau acquisition; and GBP82 million relates to a number of other GLS properties reflecting capacity increases, rent reviews and renewals/extensions. Lease obligations have also increased by GBP45 million (2020-21: GBP52 million) as a result of Royal Mail vehicle and plant and machinery additions and modifications.

Approach to capital management

The Group has 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. As announced at the half year end, in the current risk environment, we believe running a Group net nil cash position on a pre-IFRS 16 basis is appropriate. The net cash position (pre-IFRS 16) at 27 March 2022 was GBP307 million (2020-21: GBP622 million). We currently do not propose to pay any further special dividends. We expect both Royal Mail and GLS to be independently cash generative businesses. In line with this framework, the Group's key 2021-22 capital management objectives are detailed below together with a progress update.

 
 Objectives       Enablers                                           2021-22 update 
---------------  -------------------------------------------------  -------------------------------------------------- 
 Meet the         Maintaining sufficient                             At 27 March 2022, the Group had available 
  Group's         cash reserves                                      resources of GBP2,096 million (2020-21: GBP2,457 
  obligations     and committed                                      million) made up of cash and cash equivalents 
  as they         facilities to:                                     (excluding GLS client cash) of GBP1,101 million 
  fall due.        *    Meet all obligations, including pensions.    (2020-21: GBP1,532 million), current asset 
                                                                     investments of GBP70 million (2020-21: GBPnil) 
                                                                     and undrawn committed bank syndicate loan 
                   *    Manage future risks, including the princip   facilities of GBP925 million (2020-21: GBP925 
                  al risks.                                          million). 
                                                                     At 27 March 2022, the Group met the loan 
                                                                     covenants 
                                                                     (which were reinstated following the expiry 
                                                                     of the waiver agreed in 2020-21) and other 
                                                                     obligations for its bank syndicate loan facility, 
                                                                     and EUR500 million and EUR550 million bonds. 
                                                                     As set out in the Viability Statement, the 
                                                                     Directors have a reasonable expectation that 
                                                                     the Group will be able to continue in operation 
                                                                     and meet its liabilities as they fall due. 
---------------  -------------------------------------------------  -------------------------------------------------- 
 Support          Generate sufficient                                The Group reported GBP353 million of pre-IFRS 
  a progressive    in-year trading                                    16 in-year trading cash flow (2020-21: GBP614 
  dividend         cash flow to cover                                 million), sufficient to cover the proposed 
  policy.          the ordinary dividend.                             full-year ordinary dividend (subject to approval 
                   Maintain sufficient                                at the AGM) of 20.0 pence per share (final 
                   distributable                                      dividend of 13.3 pence per share combined 
                   reserves to sustain                                with the interim dividend of 6.7 pence per 
                   the Group's dividend                               share paid in January 2022) (2020-21: 10.0 
                   policy.                                            pence per share). 
                                                                      Capital managed by the Group, excluding the 
                                                                      pension scheme surplus net of withholding 
                                                                      tax payable, is GBP2,611 million at 27 March 
                                                                      2022 (2020-21: GBP2,416 million). 
                                                                      The Group had retained earnings of GBP5,248 
                                                                      million at 27 March 2022 
                                                                      (2020-21: GBP4,802 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. 
---------------  -------------------------------------------------  -------------------------------------------------- 
 Reduce           Target investment                                  During the year, the Group maintained a credit 
  the cost         grade standard                                     rating of BBB with Standard & Poor's and the 
  of capital       credit metrics                                     outlook was revised from negative to positive. 
  for the          i.e. no lower 
  Group.           than BBB- under 
                   Standard & Poor's 
                   rating methodology. 
---------------  -------------------------------------------------  -------------------------------------------------- 
 Retain           Funded by retained                                 During the year, the Group made total gross 
  sufficient       cash flows and                                    capital investments of GBP603 million (2020-21: 
  flexibility      manageable levels                                 GBP346 million) and acquisition of business 
  to invest        of debt consistent                                interests of GBP204 million (2020-21: GBP4 
  in the           with our target                                   million) while retaining sufficient capital 
  future           credit rating.                                    headroom. 
  of the                                                             Both Royal Mail and GLS generated cash to 
  business.                                                          fund their own organic investment and contribute 
                                                                     towards inorganic investment and capital 
                                                                     distribution. 
---------------  -------------------------------------------------  -------------------------------------------------- 
 Maintain         Retain sufficient                                  In November 2021, the Directors stated that 
  suitable         leverage, commensurate                            they expect to move towards a net nil cash 
  financial        with the Board's                                  position (pre-IFRS 16) over the next two years 
  leverage.        assessment of                                     from a net cash position at 26 September 2021 
                   the risk environment.                             of GBP685 million. 
                                                                     During the year, the Group made a special 
                                                                     dividend payment of 20.0 pence per share (2020-21 
                                                                     nil) and completed a share buyback of 43,806,525 
                                                                     ordinary shares for GBP201 million (2020-21: 
                                                                     nil). 
                                                                     The net cash position (pre-IFRS 16) at 27 
                                                                     March 2022 was GBP307 million (2020-21: GBP622 
                                                                     million). 
---------------  -------------------------------------------------  -------------------------------------------------- 
 

Financial risks and related hedging

The Group is exposed to commodity price and currency risk.

Royal Mail operates a three-year layered rolling hedging strategy for fuel and energy. Royal Mail has hedges in place for 92% of total underlying commodity costs for 2022-23; as a result, a further 10% increase in underlying commodity costs would reduce operating profit by just GBP2 million. However, a 10% increase in fuel duty/other additional costs would reduce operating profit by GBP15 million.

GLS generally out-sources its collection, delivery and line-haul activities to sub-contractors, and therefore is not significantly directly exposed to higher fuel costs. Nevertheless, there is an indirect exposure, as increasing fuel costs for sub-contractors lead to higher rates for their services as they seek to pass on the higher fuel costs incurred.

GLS has very limited direct exposure to diesel costs. GLS does not hedge exposure to energy costs, a further 10% increase in energy costs would increase energy costs by GBP4 million.

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:EUR1.18 (2020-21: GBP1:EUR1.12). This resulted in a GBP16 million decrease in GLS' reported operating profit before tax in 2021-22 (2020-21: GBP7 million increase). The net impact on Group operating profit before tax was a GBP16 million decrease (2020-21: GBP7 million increase).

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 27 March 2022, all the gross debt of GBP2,213 million (2020-21: GBP2,051 million) was at fixed rates.

London Development Portfolio

The current year net cash inflows relating to the London Development Portfolio were GBP99 million, consisting of receipts of GBP111 million for Nine Elms, offset by the cost of enabling works of GBP4 million at Mount Pleasant and GBP8 million at Nine Elms.

In total we have invested GBP12 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.

1) Mount Pleasant

This development site includes the sale of 6.25 acres to develop c.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 has been received as at 27 March 2022 (no proceeds were received in the current year). The remainder of the cash is due to be received through a stage payment in 2023-24 (GBP66 million) and a final payment in 2024-25 (GBP9 million).

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 and 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.

-- Plots E, F and G sale completed January 2022 for GBP111.2 million to London Square Developments Ltd.

Further investment by Royal Mail will be required in relation to infrastructure obligations.

Pensions

Royal Mail makes contributions to two main schemes in the UK; the Royal Mail Defined Contribution Plan (RMDCP), and the DBCBS of the Royal Mail Pension Plan.

The Group also operates two additional UK defined benefit schemes which are closed to future accrual, the legacy section of the RMPP, and the Royal Mail Senior Executives Pension Plan (RMSEPP).

Royal Mail aims to introduce a new pension scheme, the RMCPP, in the second half of the next financial year, subject to the necessary legislative changes and regulatory approvals being obtained. This will replace the existing DBCBS and the RMDCP, and will comprise a Defined Benefit Lump Sum (DBLS) Section, similar to the existing DBCBS, and a Collective Defined Contribution (CDC) Section - the first CDC scheme in the UK.

The CDC Section will be accounted for as a defined contribution scheme and the DBLS Section as a defined benefit scheme with the accounting treatment expected to be similar to the DBCBS. The new arrangements will have fixed employer contributions of 13.6%, plus an additional 1.0% for employees who choose to save for an additional lump sum payment. Standard employee contributions will be 6.0%.

Cash pension costs

The Group's cash pension costs in respect of all UK pension schemes were GBP395 million in the 2021-22 financial year, excluding Pension Salary Exchange (PSE).(20)

When the design of the RMCPP was agreed in 2018, the fixed employer contribution rate of 13.6% of pensionable pay was designed to be affordable and sustainable for Royal Mail. The expected cost of RMCPP based on pensionable payroll at that time was approximately the same as the cost of the existing schemes, at around GBP400 million per year. The new RMCPP is expected to increase cash pension costs by c.GBP30 million per annum, based on current payroll, when it is introduced. The main reason for the increase is that although the estimated cost of the RMCPP as a percentage of pensionable pay will remain broadly the same as in 2018, payroll costs have increased. In addition, since the RMPP closed to accrual in 2018, the cost of existing plans has been reducing over time relative to overall pay costs, as DBCBS members leave and are replaced by new employees who join the RMDCP, at a lower employer contribution rate.

20. Includes GBP12 million insurance premium costs which are reported within wages and salary costs.

Defined benefit schemes - balance sheet position

An IAS 19 deficit of GBP390 million (2020-21: GBP394 million) is shown on the balance sheet in respect of the DBCBS; however, the scheme is not in funding deficit and it is not anticipated that deficit payments will be required.

The RMPP scheme closed to future accrual in its previous form from 31 March 2018. The pre-withholding tax accounting surplus of the RMPP at 27 March 2022 was GBP4,182 million (28 March 2021: GBP3,666 million). The pre-withholding tax accounting surplus has increased by GBP516 million (28 March 2021: GBP1,884 million decrease) in the year, largely as a result of a significant increase in the 'real' discount rate (the difference between RPI and the discount rate based on corporate bond yields), which has significantly reduced liabilities. This has been offset by a decrease in the value of the RMPP assets as a result of a large increase in index-linked gilt yields, against which the assets are hedged.

The RMSEPP closed in December 2012 to future accrual and the Group makes no regular service contributions. The Scheme's liabilities are now substantially covered by buy-in insurance policies and the scheme is expected to be wound up imminently. The pre-withholding tax accounting surplus at 27 March 2022 was GBP8 million (28 March 2021: GBP9 million).

Further details of all the Group's pension arrangements can be found in note 8.

Dividends

On 12 January 2022, an interim dividend of 6.7 pence per share was paid to shareholders on the register at the close of business on 3 December 2021. On the same date, a special dividend of GBP199 million was paid. The Board is recommending the payment of a final dividend of 13.3 pence per share in respect of 2021-22. This dividend will be paid on 6 September 2022 to shareholders on the register as at 29 July 2022, subject to approval at the 2022 AGM.

VIABILITY STATEMENT

Viability Statement

This Viability Statement should be read in conjunction with the Group's business strategy as set out in the Royal Mail and GLS strategic updates.

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 period

While the Directors have no reason to believe that the Group will not be viable over the longer term, they have assessed the viability of the Group over a three-year period to March 2025 (the Viability Period) taking into account the Group's current financial position and the potential impact of our principal risks. This time period is considered appropriate as it aligns with the Group's three-year business planning cycle (Business Plan) and is consistent with the time horizon used to determine the probability and likely impact of our principal risks. A three-year period is also the most appropriate time horizon over which to assess the commercial and economic environment across the Group's letter and parcel markets. Forecasting beyond three years is considered too long given the uncertainties created by the evolving economic and competitive market dynamics.

Process, key factors and assumptions

The Group's viability is assessed as part of our regular strategy and budget reviews, financial forecasting, capital structure and ongoing risk management. The assessment takes into account a number of matters including:

-- The Group's strategic priorities and Business Plan. Financial planning and forecasting processes covering the Group's profitability, cash flows and other key financial metrics underpin the Business Plan, which comprises a budget for the next financial year (based on a detailed commercial and operational assessment) together with a projection for the following two years.

-- The large fixed cost base required to deliver the Universal Service Obligation in its current form.

-- The Group's principal risks and the measures in place to mitigate those risks. (See Principal Risks and Uncertainties).

-- The Group's capital structure and the allocation of capital to support Royal Mail and GLS' respective growth strategies (see Approach to Capital Management). This includes capital investment, liquidity position (including liquidity available from the syndicated loan facility, debt maturity profile, credit rating and dividend policy.

The key assumptions used in relation to the Business Plan that supports the viability assessment are as follows:

-- No further lockdowns expected however increased macro-economic pressures impacting letters and parcels for both Royal Mail and GLS.

-- Royal Mail: Addressed letter volume (excluding elections) decline high single digit percentage in 2022-23, increase National Insurance contributions of around GBP50 million, reduced test kit volumes and inflationary pressures on pay agreement - assume agreement is reached with both CWU and Unite/CMA without prolonged industrial dispute.

-- GLS: High single digit revenue growth in 2022-23, increasing cost pressure due to driver and labour shortages and higher minimum wages in key markets (e.g. Germany). Operating profit for 2022-23 in the range of EUR370 - EUR410 million.

-- GLS EUR500 million 'Accelerate' operating profit target in 2024-25 (assuming economic rebound in 2023-24).

-- Cost mitigations to help offset headwinds include operations management restructuring, ongoing and flow through Pathway to Change savings, reduction in absence and removal of residual costs from COVID-19, next phase of non-people cost reduction and further automation of parcel sortation in both Royal Mail and GLS.

   --      See outlook in Group Review by Non-Executive Chairman for further information. 

Scenario modelling

The Business Plan projections were stress tested by modelling multiple downside scenarios which have the greatest potential to threaten the Business Plan. The scenarios, which are detailed below, take account of the Group's principal risks, and analyse financial impact over the Viability Period. The scenarios were tested in aggregate 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 required to support Royal Mail and GLS' respective growth strategies.

-- The Group's EUR500 million bond which matures in July 2024, within the Viability Period. The Business Plan assumes this facility would be refinanced on similar commercial terms. However, in the very unlikely event that this is not possible, to ensure that the obligation is satisfied, other options could be considered including using capital generated, reducing investment or reviewing dividend payments.

-- The actions undertaken to manage and mitigate the Group's principal risks (see Principal Risks and Uncertainties).

   --      Short-term cost and cash saving actions available to the Group including: 
   --      Reducing variable hours and cost of sales in response to lower revenue. 
   --      Reducing discretionary pay. 
   --      Reducing one-off projects. 
   --      Reducing internal investment. 
   --      Reviewing dividend policy. 

Based on our best view of the severe but plausible downside scenarios and the outcome of the assessments undertaken, the Directors have concluded that the Group has reasonable

expectation to remain viable supported by:

   --      Short-term cost and cash saving actions. 
   --      Sufficient liquidity available to meet obligations. 
   --      The syndicated loan facility. 
   --      Continued access to the debt markets. 

The outcome of the assessments has also confirmed the importance of maintaining a conservative balance sheet, including a net cash position on a pre-IFRS 16 basis. See our Approach to Capital Managment for further information.

If outcomes are significantly worse, the Directors would need to consider what additional mitigating actions were needed including 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 scenarios) which may cast doubt on the Group's ability to continue to be viable over the Viability Period is not currently reasonable.

 
 Scenarios modelled 
  and assumption                                                  Principal risks 
-------------------------------------------------------------  ------------------------------------------------------- 
 Scenario:       Deteriorating economic and market 
                 conditions.                                      *    Economic and political environment 
  Assumptions: 
                 Further letter volume decline. Continued 
                 impact of lower international and cross          *    Customer expectations and our responsiveness to 
                 -- border volume.                                     market changes 
 
 
                                                                  *    Business continuity and operational resilience 
--------------  ---------------------------------------------  ------------------------------------------------------- 
 Scenario:       Increased competition in the UK parcels 
                  sector including changes in consumer            *    Customer expectations and our responsiveness to 
                  expectations and/or market disruption.               market changes 
 
  Assumptions:    Lower parcel revenues. 
--------------  ---------------------------------------------  ------------------------------------------------------- 
 Scenario:       Potential impact of industrial action 
                  or incurring costs to avoid it.                 *    Industrial action 
 
  Assumptions:    Lower operating profit as a result 
                  of industrial relations.                        *    Failure to reduce our cost base 
 
 
                                                                  *    Customer expectations and our responsiveness to 
                                                                       market changes 
--------------  ---------------------------------------------  ------------------------------------------------------- 
 Scenario:       Delays in relation to the Royal Mail 
                  transformation plan.                             *    Failure to reduce our cost base 
  Assumptions: 
                  Lower productivity improvements. 
--------------  ---------------------------------------------  ------------------------------------------------------- 
 Scenario:       Increasing inflationary pressures on 
                  staff and non-staff costs.                       *    Economic and political environment 
 
  Assumptions:    Increased non-people costs in Royal 
                  Mail.                                            *    Failure to reduce our cost base 
                  GLS margin decline. 
--------------  ---------------------------------------------  ------------------------------------------------------- 
 Scenario:       Cyber-attack triggering material service 
                  and/or operational interruption.                *    Major breach of information security, data prot 
                                                                 ection 
  Assumptions:    Cyber breach impacting revenue collection            regulation and/or cyber-attack 
                  for one week. 
 
                                                                  *    Business continuity and operational resilience 
--------------  ---------------------------------------------  ------------------------------------------------------- 
 Scenario:       Continued high sick rate absence. 
                                                                   *    Health, safety and wellbeing 
  Assumptions:    Sick absence above historic average. 
--------------  ---------------------------------------------  ------------------------------------------------------- 
 

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 in conjunction with the downside scenarios used to stress test the Viability Period. There were no material uncertainties causing doubt in relation to the Group's ability to continue as a going concern. Accordingly, the Board concluded that it was appropriate to continue to adopt the going concern basis of accounting. For further information, see Note 1 to the consolidated Financial Statements.

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 2025.

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Income Statement

For the 52 weeks ended 27 March 2022 and 52 weeks ended 28 March 2021

 
                                                                Reported   Reported 
                                                                52 weeks   52 weeks 
                                                                    2022       2021 
                                                        Notes       GBPm       GBPm 
------------------------------------------------------  -----  ---------  --------- 
Continuing operations 
Revenue                                                           12,712     12,638 
Operating costs(1)                                              (12,128)   (12,020) 
------------------------------------------------------  -----  ---------  --------- 
People costs                                                3    (6,665)    (6,554) 
Distribution and conveyance costs                                (3,556)    (3,483) 
Infrastructure costs                                             (1,059)    (1,074) 
Other operating costs                                              (848)      (909) 
------------------------------------------------------  -----  ---------  --------- 
 
Operating profit before specific items                               584        618 
Operating specific items                                 4/10        (7)        (7) 
------------------------------------------------------  -----  ---------  --------- 
Operating profit                                                     577        611 
Profit on disposal of property, plant and equipment 
 (non-operating specific item)(2)                           4         72         36 
------------------------------------------------------  -----  ---------  --------- 
Profit before interest and tax                                       649        647 
Finance costs                                                       (57)       (55) 
Finance income                                                         6         17 
Net pension interest (non-operating specific item)(2)     4/8         64        117 
------------------------------------------------------  -----  ---------  --------- 
Profit before tax                                                    662        726 
Tax charge                                                  5       (50)      (106) 
------------------------------------------------------  -----  ---------  --------- 
Profit for the year                                                  612        620 
 
Earnings per share 
Basic                                                       6      61.7p      62.0p 
Diluted                                                     6      61.4p      61.8p 
------------------------------------------------------  -----  ---------  --------- 
 
   1.    Operating costs are stated before operating specific items. 

2. For further details on alternative performance measures used, see the section entitled 'Presentation of results and Alternative Performance Measures.'

Consolidated Statement of Comprehensive Income

For the 52 weeks ended 27 March 2022 and 52 weeks ended 28 March 2021

 
                                                                  Reported   Reported 
                                                                  52 weeks   52 weeks 
                                                                      2022       2021 
                                                          Notes       GBPm       GBPm 
--------------------------------------------------------  -----  ---------  --------- 
Profit for the year                                                    612        620 
Other comprehensive income/(expense) for the year 
 from continuing operations: 
Items that will not be subsequently reclassified 
 to profit or loss: 
Amounts relating to pensions accounting                                414    (1,448) 
--------------------------------------------------------  -----  ---------  --------- 
Withholding tax (payable)/receivable on distribution 
 of RMPP and RMSEPP surplus                                   8      (181)        660 
Remeasurement gains/(losses) of the defined benefit 
 surplus in RMPP and RMSEPP                                8(c)        457    (1,998) 
Remeasurement gains/(losses) of the defined benefit 
 deficit in DBCBS                                          8(d)        172      (136) 
Deferred tax associated with DBCBS                            5       (34)         26 
--------------------------------------------------------  -----  ---------  --------- 
Items that may be subsequently reclassified to 
 profit or loss: 
Foreign exchange translation differences                                 -       (23) 
--------------------------------------------------------  -----  ---------  --------- 
Exchange differences on translation of foreign 
 operations (GLS)                                                     (12)       (45) 
Net gain on hedge of a net investment (EUR500 
 million bond)                                                          11         20 
Net gain on hedge of a net investment (Euro-denominated 
 lease payables)                                                         1          2 
--------------------------------------------------------  -----  ---------  --------- 
Designated cash flow hedges                                             83         30 
--------------------------------------------------------  -----  ---------  --------- 
Gains on cash flow hedges deferred into equity                         117         11 
(Gains)/losses on cash flow hedges released from 
 equity to income                                                     (24)         23 
Losses released from equity to the carrying value 
 of non-financial assets                                                 2          - 
Gain/(loss) on cross-currency swap cash flow hedge 
 deferred into equity                                                    2        (2) 
Loss on cross-currency swap cash flow hedge released 
 from equity to income 
- interest payable                                                       8          8 
Loss on cost of hedging deferred into equity                             -        (2) 
Gain on cost of hedging released from equity to 
 income - interest payable                                             (1)        (1) 
Tax on above items                                            5       (21)        (7) 
--------------------------------------------------------  -----  ---------  --------- 
Total other comprehensive income/(expense) for 
 the year                                                              497    (1,441) 
--------------------------------------------------------  -----  ---------  --------- 
Total comprehensive income/(expense) for the 
 year                                                                1,109      (821) 
--------------------------------------------------------  -----  ---------  --------- 
 

Consolidated Balance Sheet

At 27 March 2022 and 28 March 2021

 
                                                                        Reported 
                                                             Reported         at 
                                                          at 27 March   28 March 
                                                                 2022       2021 
                                                  Notes          GBPm       GBPm 
------------------------------------------------  -----  ------------  --------- 
Non-current assets 
Property, plant and equipment                                   3,571      3,007 
Goodwill                                                          428        378 
Intangible assets                                                 488        468 
Investments in associates                                           1          5 
Financial assets 
  Pension escrow investments                                      213        212 
  Derivatives                                                      30          5 
RMPP/RMSEPP retirement benefit surplus - net of 
 withholding tax payable                              8         2,723      2,389 
Other receivables                                                  94        100 
Deferred tax assets                                   5           116        153 
------------------------------------------------  -----  ------------  --------- 
                                                                7,664      6,717 
------------------------------------------------  -----  ------------  --------- 
Assets held for sale                                                -         26 
------------------------------------------------  -----  ------------  --------- 
Current assets 
Inventories                                                        34         18 
Trade and other receivables                                     1,659      1,640 
Income tax receivable                                              41          9 
Financial assets 
  Investments                                                      70          - 
  Derivatives                                                      74          2 
Cash and cash equivalents                                       1,137      1,573 
------------------------------------------------  -----  ------------  --------- 
                                                                3,015      3,242 
------------------------------------------------  -----  ------------  --------- 
Total assets                                                   10,679      9,985 
------------------------------------------------  -----  ------------  --------- 
Current liabilities 
Trade and other payables                                      (2,332)    (2,377) 
Financial liabilities 
  Lease liabilities                                             (213)      (197) 
  Derivatives                                                     (8)       (12) 
Income tax payable                                               (10)       (15) 
Provisions                                           10         (176)      (124) 
------------------------------------------------  -----  ------------  --------- 
                                                              (2,739)    (2,725) 
------------------------------------------------  -----  ------------  --------- 
Non-current liabilities 
Financial liabilities 
  Interest-bearing loans and borrowings                         (872)      (895) 
  Lease liabilities                                           (1,128)      (959) 
  Derivatives                                                    (36)       (36) 
DBCBS retirement benefit deficit                      8         (390)      (394) 
Provisions                                           10          (94)      (105) 
Other payables                                                   (32)       (18) 
Deferred tax liabilities                              5          (54)       (48) 
------------------------------------------------  -----  ------------  --------- 
                                                              (2,606)    (2,455) 
------------------------------------------------  -----  ------------  --------- 
Total liabilities                                             (5,345)    (5,180) 
------------------------------------------------  -----  ------------  --------- 
Net assets                                                      5,334      4,805 
------------------------------------------------  -----  ------------  --------- 
Equity 
Share capital                                                      10         10 
Retained earnings                                               5,248      4,802 
Other reserves                                                     76        (7) 
------------------------------------------------  -----  ------------  --------- 
Total equity                                                    5,334      4,805 
------------------------------------------------  -----  ------------  --------- 
 

The Financial Statements were approved and authorised for issue by the Board of Directors on 18 May 2022 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 27 March 2022 and 52 weeks ended 28 March 2021

 
                                                                      Foreign 
                                                                     currency 
                                               Share   Retained   translation   Hedging    Total 
                                             capital   earnings       reserve   reserve   equity 
                                                GBPm       GBPm          GBPm      GBPm     GBPm 
------------------------------------------  --------  ---------  ------------  --------  ------- 
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 
------------------------------------------  --------  ---------  ------------  --------  ------- 
  Profit for the year                              -        612             -         -      612 
  Other comprehensive income for 
   the year                                        -        414             -        83      497 
------------------------------------------  --------  ---------  ------------  --------  ------- 
Total comprehensive income for 
 the year                                          -      1,026             -        83    1,109 
Transactions with owners of the 
 Company, recognised directly in 
 equity 
Purchase of own shares(1)                          -       (17)             -         -     (17) 
Share buyback                                      -      (201)             -         -    (201) 
Dividend paid to equity holders 
 of the Parent Company                             -      (366)             -         -    (366) 
Share-based payments 
  Employee Free Shares issue                       -          1             -         -        1 
  LTIP                                             -          2             -         -        2 
  DSBP                                             -          1             -         -        1 
------------------------------------------  --------  ---------  ------------  --------  ------- 
Reported at 27 March 2022                         10      5,248             7        69    5,334 
------------------------------------------  --------  ---------  ------------  --------  ------- 
 
   1.    Shares required for employee share schemes. 

Consolidated Statement of Cash Flows

For the 52 weeks ended 27 March 2022 and 52 weeks ended 28 March 2021

 
                                                                   Reported   Reported 
                                                                   52 weeks   52 weeks 
                                                                       2022       2022 
                                                           Notes       GBPm       GBPm 
---------------------------------------------------------  -----  ---------  --------- 
Cash flow from operating activities 
Profit before tax                                                       662        726 
Adjustment for: 
  Net pension interest (non-operating specific item)           8       (64)      (117) 
  Net finance costs                                                      51         38 
  Profit on disposal of property, plant and equipment 
   (non-operating specific item)                               4       (72)       (36) 
  Specific items (operating)                                   4          7          7 
---------------------------------------------------------  -----  ---------  --------- 
Operating profit before specific items(1)                               584        618 
Adjustment for: 
  Depreciation and amortisation                                         540        554 
---------------------------------------------------------  -----  ---------  --------- 
EBITDA before specific items(1)                                       1,124      1,172 
Working capital movements                                              (29)         41 
---------------------------------------------------------  -----  ---------  --------- 
Increase in inventories                                                (14)          - 
Increase in receivables                                                (16)      (376) 
(Decrease)/increase in payables                                        (54)        375 
Net decrease in derivative assets                                         3         16 
Increase in provisions (non-specific items)                              52         26 
---------------------------------------------------------  -----  ---------  --------- 
Pension charge to cash difference adjustment                 4/8        174         84 
Share-based awards (LTIP and DSBP) charge                                 3          4 
Cash cost of operating specific items                                   (4)        (4) 
---------------------------------------------------------  -----  ---------  --------- 
Cash inflow from operations                                           1,268      1,297 
Income tax paid                                                       (108)      (125) 
Research and development expenditure credit                               -          1 
---------------------------------------------------------  -----  ---------  --------- 
Net cash inflow from operating activities                             1,160      1,173 
---------------------------------------------------------  -----  ---------  --------- 
Cash flow from investing activities 
Dividend received from associate undertaking                              5          - 
Finance income received                                                   4         16 
Proceeds from disposal of property (excluding 
 London Development Portfolio), plant and equipment 
 (non-operating specific item)                                           10          5 
London Development Portfolio net proceeds (non-operating 
 specific item)                                                          99         13 
Purchase of property, plant and equipment(2)                          (519)      (289) 
Acquisition of business interests, net of cash 
 acquired                                                             (204)          - 
Purchase of intangible assets (software)(2)                            (84)       (57) 
Payment of deferred consideration in respect of 
 prior years' acquisitions                                                -        (4) 
(Purchase)/sale of financial asset investments                         (70)         30 
---------------------------------------------------------  -----  ---------  --------- 
Net cash outflow from investing activities                            (759)      (286) 
---------------------------------------------------------  -----  ---------  --------- 
Net cash inflow before financing activities                             401        887 
---------------------------------------------------------  -----  ---------  --------- 
Cash flow from financing activities 
Finance costs paid                                                     (56)       (57) 
Share buyback                                                         (201)          - 
Purchase of own shares                                                 (17)          - 
Payment of capital element of obligations under 
 lease contracts                                                      (192)      (188) 
Cash received on sale and leasebacks                                      -          1 
Repayment of loans and borrowings                                         -      (700) 
Dividends paid to equity holders of the Parent 
 Company                                                       7      (366)          - 
---------------------------------------------------------  -----  ---------  --------- 
Net cash outflow from financing activities                            (832)      (944) 
---------------------------------------------------------  -----  ---------  --------- 
Net decrease in cash and cash equivalents                             (431)       (57) 
Effect of foreign currency exchange rates on cash 
 and cash equivalents                                                   (5)       (10) 
Cash and cash equivalents at the beginning of 
 the year                                                             1,573      1,640 
---------------------------------------------------------  -----  ---------  --------- 
Cash and cash equivalents at the end of the year                      1,137      1,573 
---------------------------------------------------------  -----  ---------  --------- 
 

1. For further details on APMs used, see the section entitled 'Presentation of results and Alternative Performance Measures.'

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 and accounting policies 

General information

Royal Mail plc (the Company) is incorporated in the United Kingdom (UK). The Consolidated Financial Statements have been produced in accordance with UK-adopted international accounting standards ('UK-adopted IFRS').

The Consolidated Financial Statements of the Company for the 52 weeks ended 27 March 2022 (2020-21: 52 weeks ended 28 March 2021) 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 for the 52 weeks ended 27 March 2022 were authorised for issue by the Board on 18 May 2022.

Basis of preparation and accounting

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, derivative financial instruments and the assets and liabilities relating to the acquisition of businesses, 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 27 March 2022 (2020-21: 52 weeks ended 28 March 2021). GLS' reporting year-end date is 31 March each year. There were no significant transactions between the respective reporting dates that required adjustment in the Financial Statements.

The financial information set out in this document does not constitute the Group's statutory Financial Statements for the reporting years ended 27 March 2022 or 28 March 2021 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 27 March 2022 were approved by the Board of Directors on 18 May 2022 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 have been produced in accordance with UK-adopted international accounting standards ('UK-adopted IFRS'), i.e. on a 'reported' basis. In some instances, APMs are used by the Group to provide 'adjusted' results. This is because Management is of the view that these APMs provide a useful basis on which to analyse underlying business performance and is consistent with the way that financial performance is measured by Management and reported to the Board.

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 severe but plausible downside scenarios and assessed these against cash at bank an in hand of GBP276 million, cash equivalent investments of GBP825 million, current asset investments of GBP70 million and the undrawn bank syndicate loan facility of GBP925 million, at 27 March 2022. The downside scenarios included a consideration of deteriorating economic and market conditions impacting Royal Mail and GLS, increased competition in the UK parcels sector, a slower pace of transformation in the UK business and the impact this has on cost control, and the potential impact of industrial action or incurring costs to avoid it. See the Viability Statement for more information on the downside scenarios.

The severe but plausible downside case indicates that the Group would not expect 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 2023. In the event of a severe but plausible downside, prepared in line with the viability scenarios included within this Annual Report, cash/liquidity headroom is expected to remain significantly above GBP1.0 billion.

Consequently, the Directors are satisfied 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.

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 2021-22 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 Consolidated Financial Statements are consistent with those in the Annual Report and Financial Statements for the year ended 28 March 2021, along with the adoption of new and amended accounting standards with effect from 29 March 2021 as detailed below:

New and amended accounting standards adopted in 2021-22

Interest Rate Benchmark Reform - Phase 2 (amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)

The Group has adopted Phase 2 of the Interest Rate Benchmark Reform with effect from 29 March 2021. The amendments do not have an effect on the Group as it does not have any financial instruments that reference LIBOR. The interest reference rate in the bank syndicate loan facility was amended in the period from LIBOR to SONIA (Sterling OverNight Indexed Average) (SOFR (Secured Overnight Financing Rate) for any drawings in US Dollars). Interest is compounded daily and a credit adjustment spread of between 0.0% and 0.3% is added using the ISDA (International Swaps and Derivatives Association) published five-year historical mean on fixing date 5 March 2021. The bank syndicate loan facility was undrawn throughout the period and therefore is unaffected by the amendment in the period.

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:

Annual improvements to IFRS 2018-2020

IAS 1 (Amended) - Classification of Liabilities as Current or Non-current

IAS 1 (Amended) - Disclosure of Accounting Policies

IAS 8 (Amended) - Definition of Accounting Estimates

IAS 12 (Amended) - Deferred Tax Related to Assets and Liabilities Arising From a Single Transaction

IAS 16 (Amended) - Property, Plant and Equipment: Proceeds Before Intended Use

IAS 37 (Amended) - Onerous Contracts - Cost of Fulfilling a Contract

IFRS 3 (Amended) - Reference to Conceptual Framework

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 pension plans are included within Note 8.

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 Royal Institute of Chartered Surveyors (RICS) Valuations Standards (under 'Red Book' guidelines) adjusted for any capital expenditure and impairments since that valuation.

-- 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 8.

Deferred revenue

The Group recognises advance customer payments on its balance sheet, predominantly relating to stamps and meter credits purchased by customers but not used at the balance sheet date.

The majority of this balance is made up of stamps sold to the general public. Management utilises 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. Royal Mail has now introduced barcoded stamps to replace non-barcoded stamps. The majority of non-barcoded stamps will be valid until 31 January 2023. A Stamp Swap Out scheme was launched on 31 March 2022 where non-barcoded stamps can be swapped for stamps with barcodes. Management will consider the impact that this change may have on the SITHOP balance going forward.

At 27 March 2022 the Group recognised GBP160 million (2020-21: GBP218 million) deferred revenue in respect of stamps sold to the general public but not used at the balance sheet date. In 2021-22, stamp sales reverted closer to pre-pandemic levels, which meant that some of the build-up in holdings seen in 2020-21 was utilised. 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.

Stamp holding days implied by the applying the above methodology, fell year-on-year to 31 days (2020-21: 39 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), on whose modelling actuaries rely for their calculations for asbestos-related ill-health claims, confirmed during this reporting year that the provisional guidance that they issued in February 2021 is supported by the subsequent revision of all the different models it maintains. This now established guidance indicates a significant reduction in future liabilities for such claims.

In view of the above, Management has applied a consistent approach to that of previous years and recognised a provision at 27 March 2022 between the medium and high estimates provided by the actuarial consultant. This has resulted in a release of GBP11 million (2020-21: GBP16 million), recognised in the income statement as an operating specific item. The closing provision balance at 27 March 2022 was GBP56 million (2020-21: GBP69 million) (see Notes 4 and 10).

A 50 basis points decrease to the 1.77% discount rate used at 27 March 2022 would result in a GBP3 million increase in the overall provision. Any income statement movements arising from a change in accounting estimate are disclosed as an operating specific item.

Business acquisition - Mid-Nite Sun Transportation Ltd (operates as 'Rosenau Transport')

Identifiable assets acquired and liabilities and contingent liabilities assumed in business acquisitions are measured initially at their fair values at the acquisition date. The fair value of an asset or liability represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. An independent valuer was used to assist in the valuation of the Rosenau Transport acquisition.

In determining the fair value of the intangible assets acquired, risk-adjusted future cash flows discounted using discount rates specific to the asset were used. In determining cash flows, a combination of historical data and estimates regarding revenue growth, profit margins and operating cash flows were used:

-- Customer relationships were measured using estimates of future cash flows and expected customer retention rates.

-- Brands were measured by estimating the savings realised by owning or holding the right to use the brand name (as opposed to paying a royalty fee to a third party). This includes an estimate of the projected revenues attributable to the brand, potential royalty rates and the estimated life of the brand to a third party.

-- Other tangible assets and liabilities were measured by estimating the current cost to purchase or replace the assets, taking into account available market data for the sale or transfer of such assets.

The excess of the consideration transferred, when comparing the fair value of the net identifiable assets acquired, has been recorded as goodwill.

Certain property assets and deferred tax liabilities have provisional fair values at the reporting date. The Group has one year from the acquisition date to remeasure the fair values of the acquired assets and liabilities and the resulting goodwill, if new information is obtained relating to conditions that existed at the acquisition date.

Acquisition-related costs are expensed as incurred. Details of the Rosenau Transport acquisition during the period are disclosed in Note 9.

   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. 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 2022                                              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                        8,514         4,219             (21)   12,712                 -             -    12,712 
People costs                 (5,583)         (908)                -  (6,491)             (174)             -   (6,665) 
Non-people costs             (2,515)       (2,969)               21  (5,463)                 -             -   (5,463) 
------------------  ----------------  ------------  ---------------  -------  ----------------  ------------  -------- 
Operating profit 
 before specific 
 items                           416           342                -      758             (174)             -       584 
Operating specific 
 items                             -             -                -        -                 8          (15)       (7) 
------------------  ----------------  ------------  ---------------  -------  ----------------  ------------  -------- 
Operating profit                 416           342                -      758             (166)          (15)       577 
Profit on disposal 
 of property, 
 plant 
 and equipment 
 (non-operating 
 specific item)                    -             -                -        -                71             1        72 
------------------  ----------------  ------------  ---------------  -------  ----------------  ------------  -------- 
Profit before 
 interest 
 and tax                         416           342                -      758              (95)          (14)       649 
Finance costs                   (49)          (15)                7     (57)                 -             -      (57) 
Finance income                    10             3              (7)        6                 -             -         6 
Net pension 
 interest 
 (non-operating 
 specific 
 item)                             -             -                -        -                64             -        64 
------------------  ----------------  ------------  ---------------  -------  ----------------  ------------  -------- 
Profit before tax                377           330                -      707              (31)          (14)       662 
------------------  ----------------  ------------  ---------------  -------  ----------------  ------------  -------- 
 
 
                                                                                           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                           -             -                -        -                11          (18)         (7) 
----------------  ----------------  ------------  ---------------  -------  ----------------  ------------  ---------- 
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.

The depreciation and amortisation costs shown 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 2022                                                     GBPm          GBPm   GBPm 
----------------------------------------------------  ----------------  ------------  ----- 
Depreciation                                                     (309)         (132)  (441) 
----------------------------------------------------  ----------------  ------------  ----- 
Amortisation of intangible assets (mainly software)               (88)          (11)   (99) 
----------------------------------------------------  ----------------  ------------  ----- 
 
Non-current assets                                               2,879         1,703  4,582 
----------------------------------------------------  ----------------  ------------  ----- 
 
 
                                                                                 GLS 
                                                            Royal 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 
----------------------------------------------------  ----------------  ------------  ----- 
 
   3.         People information 
 
                                                          52 weeks  52 weeks 
                                                              2022      2021 
                                                              GBPm      GBPm 
--------------------------------------------------------  --------  -------- 
Wages and salaries                                         (5,398)   (5,363) 
--------------------------------------------------------  --------  -------- 
Royal Mail(1)                                              (4,587)   (4,605) 
GLS                                                          (811)     (758) 
--------------------------------------------------------  --------  -------- 
Pensions (see Note 8)                                        (747)     (683) 
--------------------------------------------------------  --------  -------- 
Defined benefit UK                                           (441)     (369) 
Defined contribution UK                                      (116)     (111) 
Defined benefit and defined contribution Pension Salary 
 Exchange UK                                                 (181)     (194) 
GLS                                                            (9)       (9) 
--------------------------------------------------------  --------  -------- 
Social security                                              (520)     (508) 
--------------------------------------------------------  --------  -------- 
Royal Mail                                                   (432)     (424) 
GLS                                                           (88)      (84) 
--------------------------------------------------------  --------  -------- 
Total people costs                                         (6,665)   (6,554) 
--------------------------------------------------------  --------  -------- 
 

1. People costs include GBP81 million (2020-21: GBP109 million) in relation to voluntary redundancy costs.

 
Defined benefit pension plan rates: 
Income statement - DBCBS                          24.6%  19.5% 
Cash flow - DBCBS                                 15.6%  15.6% 
Defined contribution pension plan average rate: 
Income statement and cash flow(2)                  8.9%   9.3% 
------------------------------------------------  -----  ----- 
 

2. Employer contribution rates are 3% for employees in the entry level category and 10% for the majority of those employees in the standard level category.

People numbers

The number of people employed, expressed as both full-time equivalents and headcount, during the reporting year was as follows:

 
                    Full-time equivalents(3)                      Headcount(4) 
-----------  --------------------------------------  -------------------------------------- 
                  Year end            Average             Year end            Average 
             ------------------  ------------------  ------------------  ------------------ 
             52 weeks  52 weeks  52 weeks  52 weeks  52 weeks  52 weeks  52 weeks  52 weeks 
                 2022      2021      2022      2021      2022      2021      2022      2021 
-----------  --------  --------  --------  --------  --------  --------  --------  -------- 
Royal Mail    157,241   159,403   157,990   158,194   140,035   137,285   138,757   138,949 
GLS            21,808    17,644    20,719    16,618    22,325    21,307    21,062    20,245 
-----------  --------  --------  --------  --------  --------  --------  --------  -------- 
Total         179,049   177,047   178,709   174,812   162,360   158,592   159,819   159,194 
-----------  --------  --------  --------  --------  --------  --------  --------  -------- 
 

3. These people numbers relate to the total number of paid hours (including part-time, full-time and agency hours) divided by the number of standard full-time working hours in the same year.

4. These people numbers represent permanent employees. These figures include Royal Mail Pension Trustees, Intersoft and eCourier headcount.

Directors' remuneration

 
                                                                   52 weeks  52 weeks 
                                                                       2022      2021 
                                                                    GBP'000   GBP'000 
-----------------------------------------------------------------  --------  -------- 
Directors' remuneration(5)                                          (3,530)   (1,503) 
-----------------------------------------------------------------  --------  -------- 
Amounts earned under Long Term Incentive Plans                        (934)         - 
-----------------------------------------------------------------  --------  -------- 
 
Number of Directors accruing benefits under defined contribution 
 plans                                                                    1         2 
-----------------------------------------------------------------  --------  -------- 
 
   5.    These amounts include any cash supplements received in lieu of pension. 
   4.         Specific items and pension charge to cash difference adjustment 
 
                                                       52 weeks  52 weeks 
                                                           2022      2021 
                                                           GBPm      GBPm 
-----------------------------------------------------  --------  -------- 
Pension charge to cash difference adjustment (within 
 People costs)                                            (174)      (84) 
-----------------------------------------------------  --------  -------- 
Operating specific items: 
-----------------------------------------------------  --------  -------- 
Legacy/other items                                            9        12 
-----------------------------------------------------  --------  -------- 
Amortisation of intangible assets in acquisitions          (16)      (19) 
-----------------------------------------------------  --------  -------- 
Total operating specific items                              (7)       (7) 
-----------------------------------------------------  --------  -------- 
Non-operating specific items: 
-----------------------------------------------------  --------  -------- 
Profit on disposal of property, plant and equipment          72        36 
-----------------------------------------------------  --------  -------- 
Net pension interest                                         64       117 
-----------------------------------------------------  --------  -------- 
Total non-operating specific items                          136       153 
-----------------------------------------------------  --------  -------- 
Total specific items                                        129       146 
-----------------------------------------------------  --------  -------- 
 
Tax credit on certain specific items and the pension 
 charge to cash difference                                   62        37 
-----------------------------------------------------  --------  -------- 
 

The difference between the pension charge and cash cost (pension charge to cash difference adjustment) largely comprises the difference between the IAS 19 income statement pension charge rate of 24.6% (2020-21: 19.5%) of pensionable pay for the DBCBS from 29 March 2021 and the cash contribution rate agreed with the Trustee of 15.6%.

Legacy/other items mainly comprise an GBP11 million release (2020-21: GBP16 million release) of the industrial diseases provision, following the publication, in late 2021, of updated scenarios on future asbestos-related ill-health claims by the Institute and Faculty of Actuaries (UK Asbestos Working Party) (see Note 10 for further details).

The tax credit of GBP62 million (2020-21: GBP37 million) includes a net credit of GBP30 million (2020-21: 37 million) in relation to the tax effect of certain specific items and the pension charge to cash difference and, a net credit of GBP32 million (2020-21: GBPnil) in relation to the remeasurement of certain UK deferred tax assets and liabilities at the future UK corporation tax rate of 25%.

   5.         Taxation 
 
                                                                52 weeks  52 weeks 
                                                                    2022      2021 
                                                                    GBPm      GBPm 
--------------------------------------------------------------  --------  -------- 
Tax charged in the income statement 
Current income tax: 
Current UK income tax charge                                        (11)      (48) 
Foreign tax                                                         (81)      (82) 
--------------------------------------------------------------  --------  -------- 
Current income tax charge                                           (92)     (130) 
Amounts over/(under)-provided in previous years                       19       (4) 
--------------------------------------------------------------  --------  -------- 
Total current income tax charge                                     (73)     (134) 
Deferred income tax: 
Effect of change in tax rates                                         32         - 
Relating to origination and reversal of temporary differences       (17)        25 
Amounts over-provided in previous years                                8         3 
--------------------------------------------------------------  --------  -------- 
Total deferred income tax credit                                      23        28 
--------------------------------------------------------------  --------  -------- 
Tax charge in the consolidated income statement                     (50)     (106) 
--------------------------------------------------------------  --------  -------- 
 
Tax credited/(charged) to other comprehensive income 
Deferred tax: 
Tax (charge)/credit in relation to remeasurement gains 
 of the defined benefit pension schemes                             (34)        26 
Tax charge on revaluation of cash flow hedges                       (21)       (7) 
--------------------------------------------------------------  --------  -------- 
Total deferred income tax (charge)/credit                           (55)        19 
--------------------------------------------------------------  --------  -------- 
Total tax (charge)/credit in the consolidated statement 
 of other comprehensive income                                      (55)        19 
--------------------------------------------------------------  --------  -------- 
 

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 
                                                           2022      2021 
                                                           GBPm      GBPm 
-----------------------------------------------------  --------  -------- 
Deferred tax: 
Change in estimated excess tax deductions related to 
 share-based payments                                       (1)         1 
Tax credit for loss arising on share-based payments           1         - 
-----------------------------------------------------  --------  -------- 
Total deferred income tax credit recognised directly 
 in equity                                                    -         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 27 March 2022 and 52 weeks ended 28 March 2021 is shown below.

 
                                                             52 weeks  52 weeks 
                                                                 2022      2021 
                                                                 GBPm      GBPm 
-----------------------------------------------------------  --------  -------- 
Profit before tax                                                 662       726 
-----------------------------------------------------------  --------  -------- 
 
At UK statutory rate of corporation tax of 19% (2020-21: 
 19%)                                                           (126)     (138) 
Effect of different tax rates on non-UK profits and losses       (10)      (12) 
Tax over/(under)-provided in previous years(1)                     27       (1) 
Non-deductible expenses                                           (9)       (6) 
Tax reliefs and incentives                                          5         4 
Uncertain tax positions                                           (1)       (2) 
Tax effect of property disposals                                   10        26 
Tax effect of closure of RMPP to future accrual                   (3)       (2) 
Net pension interest credit                                        14        23 
Net decrease in tax charge resulting from non-recognition 
 of certain deferred tax assets and liabilities                   (3)         1 
Share-based payments - deferred tax-only adjustments                -         1 
Super-deduction enhanced capital allowances                        14         - 
Effect of change in tax rates                                      32         - 
-----------------------------------------------------------  --------  -------- 
Tax charge in the consolidated income statement                  (50)     (106) 
-----------------------------------------------------------  --------  -------- 
 

1. Tax over/(under)-provided in previous years includes a GBP23 million credit relating to a reduced uncertain tax provision against prior year claims under the patent box regime.

Deferred tax

 
                                    Credited/         Charged   Credited/ 
Deferred tax by                At   (charged)        to other   (charged)                    Jurisdictional         At 
balance                  29 March   to income   comprehensive    directly       Acquisition        right of   27 March 
sheet category               2021   statement          income   in equity   of subsidiaries          offset       2022 
52 weeks 2022                GBPm        GBPm            GBPm        GBPm              GBPm            GBPm       GBPm 
----------------------  ---------  ----------  --------------  ----------  ----------------  --------------  --------- 
Liabilities 
Accelerated capital 
 allowances                   (7)        (17)               -           -              (10)               -       (34) 
Intangible assets            (50)           -               -           -               (1)               -       (51) 
Hedging derivative 
 temporary differences          -           -            (18)           -                 -               -       (18) 
----------------------  ---------  ----------  --------------  ----------  ----------------  --------------  --------- 
                             (57)        (17)            (18)           -              (11)               -      (103) 
Jurisdictional right 
 of offset                      9           -               -           -                 -              40         49 
----------------------  ---------  ----------  --------------  ----------  ----------------  --------------  --------- 
Deferred tax 
 liabilities                 (48)        (17)            (18)           -              (11)              40       (54) 
----------------------  ---------  ----------  --------------  ----------  ----------------  --------------  --------- 
Assets 
Deferred capital 
 allowances                    33        (32)               -           -                 -               -          1 
Pensions temporary 
 differences                   75          59            (34)           -                 -               -        100 
Provisions and other           32         (5)               -           -                 -               -         27 
Employee share schemes          3           -               -         (1)                 -               -          2 
Losses available for 
 offset against future 
 taxable income                15          18               -           1                 -               -         34 
R&D expenditure credit          1           -               -           -                 -               -          1 
Hedging derivative 
 temporary differences          3           -             (3)           -                 -               -          - 
----------------------  ---------  ----------  --------------  ----------  ----------------  --------------  --------- 
                              162          40            (37)           -                 -               -        165 
Jurisdictional right 
 of offset                    (9)           -               -           -                 -            (40)       (49) 
----------------------  ---------  ----------  --------------  ----------  ----------------  --------------  --------- 
Deferred tax assets           153          40            (37)           -                 -            (40)        116 
----------------------  ---------  ----------  --------------  ----------  ----------------  --------------  --------- 
 
Net deferred tax 
 asset                        105          23            (55)           -              (11)               -         62 
----------------------  ---------  ----------  --------------  ----------  ----------------  --------------  --------- 
 
 
                                                         Credited/                Credited/ 
                                         Credited/       (charged)                (charged) 
                                    At   (charged)        to other    Credited   to foreign  Jurisdictional         At 
Deferred tax by balance       30 March   to income   comprehensive    directly     exchange        right of   28 March 
 sheet category 52                2020   statement          income   in equity      reserve          offset       2021 
 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 
---------------------------  ---------  ----------  --------------  ----------  -----------  --------------  --------- 
 

Deferred tax assets and liabilities are offset within the same jurisdiction where the Group has a legally enforceable right to do so. Below is an analysis of the deferred tax balances (after offset) for balance sheet presentation purposes.

 
                                                   At         At 
                                             27 March   28 March 
                                                 2022       2021 
Deferred tax - balance sheet presentation        GBPm       GBPm 
------------------------------------------  ---------  --------- 
Liabilities 
GLS group                                        (54)       (48) 
------------------------------------------  ---------  --------- 
Deferred tax liabilities                         (54)       (48) 
------------------------------------------  ---------  --------- 
Assets 
GLS group                                          10         10 
Net UK position                                   106        143 
------------------------------------------  ---------  --------- 
Deferred tax assets                               116        153 
------------------------------------------  ---------  --------- 
Net deferred tax asset                             62        105 
------------------------------------------  ---------  --------- 
 

The deferred tax position shows a decreased net asset in the reporting year to 27 March 2022. This is mainly due to an increase in accelerated capital allowances due to the Super-deduction and an increase in the deferred tax liability on derivatives used for hedging. The overall decrease was partially offset by an increase in the amount of tax losses carried forward and the effect of the increased UK corporation tax rate from 19% to 25%.

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 fixed assets and intangible assets in relation to acquisitions in Canada.

At 27 March 2022, the Group had unrecognised tax losses and temporary differences of GBP256 million (2020-21: GBP263 million) with a tax value of GBP75 million (2020-21: GBP73 million). Unrecognised deferred tax in relation to tax losses comprises GBP72 million (2020-21: GBP70 million) relating to losses of GBP244 million (2020-21: GBP236 million) in GLS that are available for offset against future profits if generated in the relevant GLS companies, and GBP2 million (2020-21: GBP1 million) in relation to GBP7 million (2020-21: GBP6 million) of historical UK non-trading and capital losses carried forward. Other unrecognised amounts comprise GBP1 million (2020-21: GBP2 million) relating to GLS other temporary differences of GBP5 million (2020-21: GBP21 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 GBP177 million (2020-21: GBP186 million) of capital losses, the tax effect of which is GBP44 million (2020-21: GBP35 million) in respect of assets previously qualifying for industrial buildings allowances, that would arise if the assets were sold at net book value. Further temporary differences exist in relation to GBP444 million (2020-21: GBP383 million) of gains for which rollover relief has been claimed, the tax effect of which is GBP111 million (2020-21: GBP73 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. In accordance with accounting standards, the deferred tax balances in these Financial Statements have been adjusted to effect this change.

6. Earnings per share

 
                                        52 weeks 2022                       52 weeks 2021 
----------------------------  ----------------------------------  ---------------------------------- 
                                              Specific                            Specific 
                                             items and                           items and 
                                               pension                             pension 
                              Reported   adjustment(1)  Adjusted  Reported   adjustment(1)  Adjusted 
----------------------------  --------  --------------  --------  --------  --------------  -------- 
Profit for the year (GBP 
 million)                          612              17       595       620              99       521 
Weighted average number of 
 shares issued (million)(2)        992             n/a       992       999             n/a       999 
Basic earnings per share 
 (pence)                          61.7             n/a      60.0      62.0             n/a      52.1 
Diluted earnings per share 
 (pence)                          61.4             n/a      59.7      61.8             n/a      51.9 
----------------------------  --------  --------------  --------  --------  --------------  -------- 
 

1. Further details of the specific items and pension adjustment total can be found in the Financial Review.

2. During the year 43,806,525 shares were purchased as part of the buyback programme announced on 18 November 2021.

The diluted earnings per share for the year ended 27 March 2022 is based on a weighted average number of shares of 996,495,404 (2020-21: 1,003,489,831) to take account of the potential issue of 2,087,313 (2020-21: 2,020,587) ordinary shares resulting from the Deferred Share Bonus Plans and 2,304,879 (2020-21: 2,042,060) ordinary shares resulting from the Long Term Incentive Plans.

The 2,265,008 (2020-21: 572,816) 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.

   7.         Dividends 
 
                                 52 weeks    52 weeks 
                                     2022        2021  52 weeks  52 weeks 
                                    Pence   Pence per      2022      2021 
Dividends on ordinary shares    per share       share      GBPm      GBPm 
-----------------------------  ----------  ----------  --------  -------- 
Final dividend paid                  10.0           -       100         - 
Interim dividend paid                 6.7           -        67         - 
Special dividend paid                20.0           -       199         - 
-----------------------------  ----------  ----------  --------  -------- 
Total dividends paid                 36.7           -       366         - 
-----------------------------  ----------  ----------  --------  -------- 
 

The Board has reviewed the performance of the Group during the 2021-22 reporting year and concluded that it is appropriate to pay a final dividend of 13.3 pence per share, payable on 6 September 2022 to shareholders on the register at 29 July 2022, subject to approval at the 2022 AGM (2020-21: 10 pence final dividend).

Some shares are held by the Trustee of the Royal Mail Share Incentive Plan on behalf of the Company to satisfy future share awards. The Trustee does not receive any dividends on the shares it holds, hence the value of dividends paid being lower than the number of shares in issue multiplied by the pence per share.

   8.         Retirement benefit plans 

Summary pension information

 
                                                               52 weeks  52 weeks 
                                                                   2022      2021 
                                                                   GBPm      GBPm 
-------------------------------------------------------------  --------  -------- 
Ongoing UK pension service costs 
UK defined benefit plans (including administration costs)(1)      (441)     (369) 
UK defined contribution plan                                      (116)     (111) 
UK defined benefit and defined contribution plans' Pension 
 Salary Exchange employer contributions(2)                        (181)     (194) 
-------------------------------------------------------------  --------  -------- 
Total UK ongoing pension service costs                            (738)     (674) 
GLS pension costs accounted for on a defined contribution 
 basis                                                              (9)       (9) 
-------------------------------------------------------------  --------  -------- 
Total Group ongoing pension service costs                         (747)     (683) 
Cash pension service costs(3) 
UK defined benefit plan's employer contributions(4)               (267)     (285) 
Defined contribution plans' employer contributions                (125)     (120) 
UK defined benefit and defined contribution plans' PSE 
 employer contributions                                           (181)     (194) 
-------------------------------------------------------------  --------  -------- 
Total Group cash flows relating to ongoing pension service 
 costs                                                            (573)     (599) 
-------------------------------------------------------------  --------  -------- 
Pension charge to cash difference adjustment                      (174)      (84) 
-------------------------------------------------------------  --------  -------- 
 
 
                                     At 27 
                                     March  At 28 March 
                                      2022         2021 
                                      '000         '000 
----------------------------------  ------  ----------- 
UK pension plans - active members 
UK defined benefit plan                 71           75 
UK defined contribution plan            61           53 
----------------------------------  ------  ----------- 
Total                                  132          128 
----------------------------------  ------  ----------- 
 

1. These pension service costs are charged to the income statement. They represent the cost (as a percentage of pensionable payroll - 24.6% (2020-21: 19.5%)) 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. Also included are pensions administration costs for the RMPP of GBP9 million (2020-21: GBP9 million) and the DBCBS of GBP5 million (2020-21: GBP5 million) and a GBP6 million past service cost in respect of the estimated liability for historic Guaranteed Minimum Pension (GMP) costs in RMPP that has arisen in the year. Further details are provided under the heading 'Guranteed Minimum Pensions' below.

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. For simplicity, these values exclude the impact of any timing differences in pension payments and represent the equivalent cash costs of the amounts charged to the income statement in the year.

4. The employer contribution cash flow rate of 15.6% forms part of the payroll expense and is paid in respect of the DBCBS (2020-21: 15.6%). These contribution rates are fixed, with actuarial funding valuations carried out every three years to determine whether additional deficit contributions are required. These actuarial valuations are required to be carried out on assumptions determined by the Trustee and agreed by Royal Mail. The most recent triennial valuation at 31 March 2021 has recently been completed and no additional contributions are required.

In the period, the Group operated the following plans:

UK Defined Contribution plan

Royal Mail Group Limited, the Group's main UK 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 (excluding PSE) have increased from GBP111 million in 2020-21 to GBP116 million due to a significant increase in RMDCP membership in the year, offset by a reduction in the average employer's contribution rate from 9.3% in 2020-21 to 8.9% in 2021-22.

UK Defined Benefit plans

Royal Mail Pension Plan (RMPP)(5) and Defined Benefit Cash Balance Section (DBCBS)

The legacy section of the Royal Mail Pension Plan, the RMPP, closed to future accrual in its previous form from 31 March 2018, and was replaced in 2018 by a new section of the scheme, the DBCBS.

The legacy 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 
 for members (or   1971               1971 and before 1        1987 and before 1 
 beneficiaries                        April 1987               April 2008 
 of members)                          or 
                                      for members of Section 
                                      A who chose to receive 
                                      Section B benefits. 
----------------  -----------------  -----------------------  ------------------------- 
Terms             Pension of 1/80th of pensionable salary     Pension of 1/60th 
                   plus a tax-free lump sum of 3/80ths         of pensionable salary 
                   of pensionable salary for each year         for each year of 
                   of pensionable service, until 31 March      pensionable service, 
                   2018.                                       until 31 March 2018. 
                                                               Members wishing to 
                                                               take a tax free lump 
                                                               sum on retirement 
                                                               do so in exchange 
                                                               for a reduced pension. 
----------------  ------------------------------------------  ------------------------- 
 

5. 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.

The DBCBS has been in place since 1 April 2018, when the RMPP closed. This is a transitional arrangement until the proposed Royal Mail Collective Pension Plan (RMCPP) commences.

DBCBS members build up a guaranteed lump sum benefit of 19.6% 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. The Group would be obligated to make the necessary contributions to ensure that members received at least the guaranteed lump sum amount. From an assessment of announcements and internal communications made to members of the scheme to date and taking into account the increases granted to date, Management is however of the view that there is a requirement to recognise a constructive obligation to provide an increase to the lump sum for accounting purposes. The increase awarded from 1 April 2022 is CPI (at 3.41%) plus 1.5%. Future liabilities of the scheme have been calculated assuming increases of CPI plus 2.0%, although the nature of the scheme means that actual increases could be lower or higher than this amount.

The Group signed an updated Schedule of Contributions on 17 May 2022. This covers a period of five years from the date of certification of the schedule, i.e. until May 2027. In accordance with this schedule, the Group is required to make payments totalling 15.6% of pensionable payroll in respect of DBCBS.

Pensions governance and management

Royal Mail Pensions Trustees Limited acts as the corporate Trustee to the Royal Mail Pension Plan (comprising the RMPP and DBCB Sections). There are currently seven Trustee Directors that sit on the Trustee Board. There are two vacancies for employer-nominated Trustee Directors. 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 
 of the participating     the 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          The Trustee Board sends active members an annual 
 informed                 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 
 interests of all         due under the Trust Deed and Rules. 
 RMPP 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.

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.

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, but it was delayed by the need for further clarity over the approach to GMP equalisation. This has now been resolved with most of the GMP liabilities settled and the Trustee now expects this to complete in the 2022-23 financial 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 is deemed to be the present value of the related obligations. The total value of the buy-in annuity policies in place is GBP312 million (28 March 2021: GBP364 million) and is included as a pension asset and a pension liability at 27 March 2022.(6)

An updated Schedule of Contributions was agreed in May 2021, with no further contributions to be paid for the 2021-22 financial year. Contributions in respect of death-in-service lump sum benefits and administration, and wind-up expenses after that point, should the scheme remain in operation, will be set at GBP500,000 per annum from April 2022, and will be paid annually in arrears.

   6.    In accordance with IAS 19. 

Unfunded pension

A liability of GBP2 million (2020-21: 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 Trustee for the purposes of calculating contributions and funding requirements. For the RMPP, 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 difference between the funding and accounting valuations for the DBCBS arises from the different financial assumptions used for the calculations of each, in particular the discount rates used and the assumptions for discretionary increases to the lump sum benefits. The discount rate used for funding purposes is higher than that used for accounting purposes. In addition, as described above, under IAS 19 the Group recognises a constructive obligation for a set increase to benefits, currently CPI plus 2.0%, for accounting purposes, however for funding purposes the increases are set based on the level of the available assets. This results in the accounting liabilities for the DBCBS being higher than the funding liabilities.

The updated triennial valuation for RMPP and the first triennial valuation for the DBCBS at 31 March 2021 have recently been approved. Since the RMSEPP scheme is expected to be wound up imminently, the Trustee does not intend to carry out a full triennial valuation at 31 March 2021. The estimated funding positions for the RMPP and DBCBS are shown below.

 
                                RMPP                              DBCBS 
-----------------  -------------------------------  ---------------------------------- 
Date of valuation  31 March 2021 (agreed on 17      The first full valuation has 
                    May 2022)                        been performed as at 31 March 
                                                     2021 and was agreed on 17 
                                                     May 2022 
-----------------  -------------------------------  ------------------------------------ 
Valuation          The triennial valuation has      A draft funding position at 
                    been agreed with the Trustee     31 March 2022 has been calculated 
                    and the approach has changed     based on the assumption that 
                    to a self-sufficiency basis.     the funding surplus is equal 
                    The surplus calculated for       to the amount held in respect 
                    the purposes of the March        of the risk reserve. Under 
                    2021 triennial valuation was     this method, the DBCBS actuarial 
                    GBP661 million. Based on a       surplus was estimated to be 
                    set of assumptions which form    around GBP40 million at 31 
                    the basis for the March 2021     March 2022. 
                    valuation and then rolled 
                    forward, the actuarial surplus 
                    at 31 March 2022 was estimated 
                    to be around GBP500 million. 
-----------------  -------------------------------  ------------------------------------ 
 

Below is a summary of the combined plans' assets and liabilities on an accounting (IAS 19) basis.

 
                                                     DBCBS            RMPP and RMSEPP 
--------------------------------------------  --------------------  -------------------- 
                                                     At         At         At         At 
                                               27 March   28 March   27 March   28 March 
                                                   2022       2021       2022       2021 
                                                   GBPm       GBPm       GBPm       GBPm 
--------------------------------------------  ---------  ---------  ---------  --------- 
Fair value of plans' assets (8(b) below)          1,536      1,192     11,462     11,814 
Present value of plans' liabilities             (1,926)    (1,586)    (7,272)    (8,139) 
--------------------------------------------  ---------  ---------  ---------  --------- 
(Deficit)/surplus in plans (pre-withholding 
 tax payable)                                     (390)      (394)      4,190      3,675 
Withholding tax payable(7)                          n/a        n/a    (1,467)    (1,286) 
--------------------------------------------  ---------  ---------  ---------  --------- 
(Deficit)/surplus in plans                        (390)      (394)      2,723      2,389 
--------------------------------------------  ---------  ---------  ---------  --------- 
 

7 Any reference to a withholding tax adjustment relates to withholding tax payable on distribution of a pension surplus.

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 for the RMPP 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 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 at some point in the future, using current long-term accounting assumptions at the reporting date. This is a technical adjustment made on an accounting basis and there is no cash benefit from the surplus.

This surplus is presented on the balance sheet net of a withholding tax adjustment of GBP1,464 million (at 28 March 2021: GBP1,283 million) in respect of the RMPP, 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 27 March 2022 of GBP8 million (at 28 March 2021: GBP9 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 at some point in the future, and, as such, is shown on the balance sheet net of a withholding tax adjustment of GBP3 million (at 28 March 2021: GBP3 million), which represents the tax that would be withheld on the surplus amount.

Under the terms of the DBCBS, any surplus would be awarded to members and therefore if this section was found to be in surplus the defined benefit liabilities would increase to equal the asset value under IAS 19.

Guaranteed Minimum Pensions

Pension schemes are now under an obligation to address the issue of unequal Guaranteed Minimum Pensions (GMP's). 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 RMPP's accrued GMP liabilities for members. The requirement to remove the inequality in former RMPP benefits deriving from GMP's for those members therefore rests with HM Government. Following the decision by the High Court in Lloyds Banking Group Pensions Trustees Limited versus Lloyds Bank plc (2020), however, which determined that schemes are also obliged to equalise GMP's by topping up payments for any past members who have transferred out of a scheme since May 1990, the Trustee has sought legal advice as to whether this decision also applies in the case when liabilities transferred to another scheme before April 2012. The Trustee now considers that the Lloyds judgment is likely to give rise to a residual liability for statutory transfers out which included GMP benefits between May 1990 and March 2012 and expects that this will require top up payments to be made for affected former members. The Trustee is currently reviewing historic data to calculate the exact expected impact, which will take some time to complete, but the Group's Corporate Actuary has provisionally estimated the cost to be c.GBP6 million, based on historic values of transfers out of the scheme. This has been charged to the income statement in the year as a past service cost. This cost will be funded from the RMPP assets and no additional employer contributions are expected to be required.

The RMSEPP retained all historic GMP liabilities. All unequal GMP liabilities relating to deferred and pensioner members have been settled in the year. The scheme's actuaries are now carrying out an exercise to calculate equalisation amounts in relation to members who have previously transferred out of the plan. This is expected to be completed shortly and the cost of these is expected to be minimal.

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 27 
                                                            March  At 28 March 
                                                             2022         2021 
---------------------------------------------------------  ------  ----------- 
Retail Price Index (RPI) - RMPP/RMSEPP                       3.5%         3.2% 
Retail Price Index (RPI) - DBCBS                             3.8%         3.3% 
Consumer Price Index (CPI) - RMPP/RMSEPP                     3.2%         2.9% 
Consumer Price Index (CPI) - DBCBS                           3.4%         2.8% 
Discount rate - RMPP/RMSEPP(8) 
  - nominal                                                  2.8%         2.0% 
  - real (nominal less RPI)                                (0.7%)       (1.2%) 
Discount rate - DBCBS(9) 
  - nominal                                                  2.8%         1.9% 
  - real (nominal less RPI)                                (1.0%)       (1.4%) 
                                                            RPI - 
Rate of increase in pensionable salaries(10)                 0.1%   RPI - 0.1% 
Rate of increase for deferred pensions - RMPP                 CPI          CPI 
Rate of pension increases - RMPP Sections A/B                 CPI          CPI 
                                                            RPI - 
Rate of pension increases - RMPP Section C(10)               0.1%   RPI - 0.1% 
Rate of pension increases - RMSEPP members transferred 
 from Section A or B of RMPP                                  CPI          CPI 
                                                            RPI - 
Rate of pension increases - RMSEPP all other members(10)     0.1%   RPI - 0.1% 
                                                            CPI + 
Rate of pension increases - DBCBS benefits                   2.0%   CPI + 2.0% 
Life expectancy from age 60 - for a current 40/60 year      27/25 
 old male RMPP member                                       years  28/26 years 
Life expectancy from age 60 - for a current 40/60 year      29/27 
 old female RMPP member                                     years  30/28 years 
---------------------------------------------------------  ------  ----------- 
 

8. The discount rate reflects the average duration of the RMPP benefits of around 24 years (2020-21: 25 years).

9. The discount rate reflects the average duration of the DBCBS benefits of 14.7 years (2020-21: 14.5 years). The pension service cost applicable from 29 March 2021 is based on 28 March 2021 assumptions.

10. 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

As part of the actuarial valuation as at 31 March 2021, the Scheme Actuary has carried out an updated mortality experience analysis in respect of the legacy RMPP. As a result of that analysis, the RMPP assumptions are based on the latest Self-Administered Pension Scheme (SAPS) S3 mortality tables with appropriate scaling factors (96% for male pensioners and 113% for female pensioners). Future improvements for accounting purposes now use the parameters identified from that analysis but have been based on the most up-to-date CMI 2021 core projections (smoothing factor 7.5 with a long-term trend of 1.5% per annum). The impact of these changes is to reduce the balance sheet liabilities of the RMPP by c.GBP220 million and those of RMSEPP by c.GBP9 million. No adjustments have been made to mortality assumptions at year end to reflect the potential effects of COVID-19, as it is still considered too soon to make a judgement on the impact of the pandemic on future mortality improvements.

Cash commutation allowance

In previous periods a 15% allowance had been made for active members of Section C of RMPP commuting their pension upon retirement. Recent commutation experience and expectations for the future, taking into account that most members will now have the benefit of a cash lump sum upon retirement under the DBCBS, suggest that commutations are likely to be far smaller in the future. As a result, for the 2021-22 year end this allowance has been reduced to nil. This has had the effect of increasing the RMPP's liabilities by c.GBP135 million at 27 March 2022.

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 27 March 2022            At 28 March 2021 
--------------------------------------------  -------------------------------  ------------------------------------- 
                                                 Potential 
                                                  increase          Potential           Potential          Potential 
                                                        in           increase            increase           increase 
                                                     DBCBS                 in                  in                 in 
                                               liabilities   RMPP liabilities   DBCBS liabilities   RMPP liabilities 
Key assumption change                                 GBPm               GBPm                GBPm               GBPm 
--------------------------------------------  ------------  -----------------  ------------------  ----------------- 
Additional one year of life expectancy                   -                280                   -                320 
Increase in inflation rate (both RPI and 
 CPI 
 simultaneously) of 0.1% per annum                      30                170                  25                190 
Decrease in discount rate of 0.1% per annum             30                170                  25                190 
Increase in CPI assumption (assuming RPI 
 remains constant) of 0.1% per annum                    30                 40                  25                 45 
Increase in constructive obligation of 
 0.1% per annum                                         30                  -                  25                  - 
--------------------------------------------  ------------  -----------------  ------------------  ----------------- 
 

This sensitivity analysis has been determined based on a method that assesses the impact on the defined benefit obligation, resulting from reasonable changes in key assumptions occurring at the end of the reporting year. 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 27 March 2022 are considered to derive an accurate impact in percentage terms. This percentage is then applied to the liabilities at March 2022. 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 27 March 2022          At 28 March 2021 
-----------------------------------  ------------------------  ------------------------- 
                                     Quoted  Unquoted   Total   Quoted  Unquoted   Total 
                                       GBPm      GBPm    GBPm     GBPm      GBPm    GBPm 
-----------------------------------  ------  --------  ------  -------  --------  ------ 
Equities 
UK                                        1        19      20        2        21      23 
Overseas                                 23        32      55       43        31      74 
Bonds 
  Fixed interest - UK                   416        96     512      303        20     323 
                     - Overseas         496       304     800      231       113     344 
Pooled investments 
  Absolute return                         -       477     477        -       412     412 
  Equity                                347         -     347      121         -     121 
  Private equity                          -        62      62        -       208     208 
  Fixed interest                         21       575     596      347       146     493 
  Private debt                            -       451     451        -       463     463 
  Property                                -        63      63        -        54      54 
  Liability-driven investments(11)    8,277        42   8,319    9,247      (16)   9,231 
Property (UK)                             -       626     626        -       459     459 
Cash and cash equivalents               403         -     403      444         -     444 
Other                                     -      (52)    (52)      (3)         -     (3) 
Derivatives                               -         7       7      (1)       (3)     (4) 
RMSEPP buy-in annuity policies            -       312     312        -       364     364 
-----------------------------------  ------  --------  ------  -------  --------  ------ 
Total plans' assets                   9,984     3,014  12,998   10,734     2,272  13,006 
-----------------------------------  ------  --------  ------  -------  --------  ------ 
 

11. This portfolio comprises gilt and swap contracts that are designed to hedge the majority of the interest rate and inflation risk associated with the plans' obligations. At 27 March 2022 it included GBP8,401 million (28 March 2021: GBP9,068 million) of index-linked gilts, GBP691 million (28 March 2021: GBP454 million) of bonds, GBP145 million (28 March 2021: GBP157 million) in short-term money market funds and GBP26 million of swaps (28 March 2021: GBP(18) million), offset by negative fair value investments of GBP900 million (28 March 2021: GBP457 million) in repurchase agreements and GBP44 million (28 March 2021: GBP27 million asset) in cash and similar instruments.

Included within the Group's defined benefit pension scheme assets are assets with a fair value estimated to be GBP274 million that are based on non-observable inputs at 27 March 2022. Estimates of the fair value of these assets have been performed using the latest available statements of each of the funds that make up this balance updated for any subsequent cash movements between the statement date and the year end reporting date.

There were no open equity futures or options derivatives within this portfolio at 27 March 2022 (28 March 2021: GBPnil). GBP8.4 billion (28 March 2021: GBP9.1 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 27 March 2022 (28 March 2021: GBPnil).

In light of the current war in Ukraine, the Trustee of the Royal Mail Pension Plan has carefully reviewed its exposure to Russian-domiciled investments. The Plan has no current exposure to direct investments in Russia and as such is compliant with all economic sanctions currently in force. The Trustee is also actively working with fund managers and advisers to ensure that the appropriate restrictions are put in place to prevent any future exposure.

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         The risks inherent in the investment markets are partially 
 market movements   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 GBP312 million at 27 
                    March 2022 (28 March 2021: GBP364 million) to match its 
                    liabilities. 
-----------------  ----------------------------------------------------------------- 
Interest rates     The legacy RMPP section's liabilities and assets are impacted 
 and inflation      by movements in interest rates and inflation. In order 
 changes            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 RMPP section, many of the inflation linked increases 
                    that apply are restricted to a maximum increase of 5% 
                    in any year. The scheme's rules therefore give some protection 
                    from the risk of significantly high levels of inflation. 
-----------------  ----------------------------------------------------------------- 
Equity exposure    The equity exposure of the legacy RMPP section 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 market value as at 27 March 2022 of GBPnil 
                    (28 March 2021: negative GBP2 million) included in the 
                    derivative values above. The TRS economically offsets 
                    GBP100 million of the plan's global equity market exposure 
                    at 27 March 2022 (28 March 2021: GBP60 million). 
-----------------  ----------------------------------------------------------------- 
Changes in         The RMPP's liabilities could be impacted by longer than 
 life expectancy    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         A fall in yields on AA rated corporate bonds, used to 
 corporate and      set the IAS 19 discount rates, will lead to an increase 
 Government         in the IAS 19 liabilities. 
 bond yields 
                    The legacy RMPP's assets include corporate bonds, HM Government 
                    bonds and interest rate derivatives that are expected 
                    to partly offset the impact of movements in the discount 
                    rate. The RMPP section 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. 
-----------------  ----------------------------------------------------------------- 
 

Further details on 'key sources of estimation uncertainty' relating to pension assets can be found in Note 1, including details of 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, the 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 
--------------------------------------  -----------------  -----------------  --------------------- 
                                            2022     2021      2022     2021        2022       2021 
                                            GBPm     GBPm      GBPm     GBPm        GBPm       GBPm 
--------------------------------------  --------  -------  --------  -------  ----------  --------- 
Retirement benefit surplus 
 (before withholding tax payable) 
 at 29 March 2021 and 30 March 
 2020                                     11,814   11,989   (8,139)  (6,429)       3,675      5,560 
Amounts included in the income 
 statement: 
Ongoing UK defined benefit 
 pension plan and administration 
 costs (included in people 
 costs)                                      (9)      (9)       (6)        -        (15)        (9) 
Pension interest income/(cost)(12)           235      262     (162)    (140)          73        122 
--------------------------------------  --------  -------  --------  -------  ----------  --------- 
Total included in profit 
 before tax                                  226      253     (168)    (140)          58        113 
--------------------------------------  --------  -------  --------  -------  ----------  --------- 
Amounts included in other 
 comprehensive income - remeasurement 
 (losses)/gains 
Actuarial (loss)/gain arising 
 from: 
Financial assumptions                          -        -       905  (1,748)         905    (1,748) 
Demographic assumptions                        -        -        94        -          94          - 
Experience assumptions                         -        -      (50)       97        (50)         97 
Return on plans' assets (excluding 
 interest income)                          (492)    (347)         -        -       (492)      (347) 
--------------------------------------  --------  -------  --------  -------  ----------  --------- 
Total remeasurement (losses)/gains 
 of the defined benefit surplus            (492)    (347)       949  (1,651)         457    (1,998) 
--------------------------------------  --------  -------  --------  -------  ----------  --------- 
Other 
Employer contributions                         -        -         -        -           -          - 
Benefits paid                               (86)     (81)        86       81           -          - 
--------------------------------------  --------  -------  --------  -------  ----------  --------- 
Total other movements                       (86)     (81)        86       81           -          - 
--------------------------------------  --------  -------  --------  -------  ----------  --------- 
Retirement benefit surplus 
 (before withholding tax payable) 
 at 27 March 2022 and 28 March 
 2021                                     11,462   11,814   (7,272)  (8,139)       4,190      3,675 
--------------------------------------  --------  -------  --------  -------  ----------  --------- 
Withholding tax payable                      n/a      n/a       n/a      n/a     (1,467)    (1,286) 
--------------------------------------  --------  -------  --------  -------  ----------  --------- 
Retirement benefit surplus 
 (net of withholding tax payable) 
 at 27 March 2022 and 28 March 
 2021                                        n/a      n/a       n/a      n/a       2,723      2,389 
--------------------------------------  --------  -------  --------  -------  ----------  --------- 
 

12. Pension interest income results from applying the plans' discount rate at 28 March 2021 to the plans' assets at that date. Similarly, the pension interest cost results from applying the plans' discount rate as at 28 March 2021 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, the 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 
--------------------------------------  -----------------  -----------------  --------------------- 
                                            2022     2021      2022     2021        2022       2021 
                                            GBPm     GBPm      GBPm     GBPm        GBPm       GBPm 
--------------------------------------  --------  -------  --------  -------  ----------  --------- 
Retirement benefit deficit 
 at 29 March 2021 and 30 
 March 2020                                1,192      730   (1,586)    (907)       (394)      (177) 
Amounts included in the 
 income statement 
Ongoing UK defined benefit 
 pension plan and administration 
 costs (included in people 
 costs)                                      (5)      (5)     (515)    (455)       (520)      (460) 
Pension interest income/(cost)(13)            26       20      (35)     (25)         (9)        (5) 
--------------------------------------  --------  -------  --------  -------  ----------  --------- 
Total included in profit 
 before tax                                   21       15     (550)    (480)       (529)      (465) 
--------------------------------------  --------  -------  --------  -------  ----------  --------- 
Amounts included in other 
 comprehensive income - remeasurement 
 gains/(losses) 
Actuarial gain/(loss) arising 
 from: 
Financial assumptions                          -        -       107    (271)         107      (271) 
Experience assumptions                         -        -        51       32          51         32 
Return on plan assets                         14      103         -        -          14        103 
--------------------------------------  --------  -------  --------  -------  ----------  --------- 
Total remeasurement gains/(losses) 
 of the defined benefit deficit               14      103       158    (239)         172      (136) 
--------------------------------------  --------  -------  --------  -------  ----------  --------- 
Other 
Employer contributions(14)                   361      384         -        -         361        384 
Employee contributions                         3        4       (3)      (4)           -          - 
Benefits paid                               (55)     (44)        55       44           -          - 
--------------------------------------  --------  -------  --------  -------  ----------  --------- 
Total other movements                        309      344        52       40         361        384 
--------------------------------------  --------  -------  --------  -------  ----------  --------- 
Retirement benefit deficit 
 at 27 March 2022 and 28 
 March 2021                                1,536    1,192   (1,926)  (1,586)       (390)      (394) 
--------------------------------------  --------  -------  --------  -------  ----------  --------- 
 

13. Pension interest income results from applying the plans' discount rate at 28 March 2021 to the plans' assets at that date. Similarly, the pension interest cost results from applying the plans' discount rate as at 28 March 2021 to the plans' liabilities at that date.

14. Includes PSE contributions of GBP99 million (2020-21: GBP106 million).

   9.         Acquisition of businesses 

On 1 December 2021, GLS, acquired 100% of the share capital of Mid-Nite Sun Transportation Ltd (operates as 'Rosenau Transport').

GLS also acquired the assets and liabilities of Servi Henares S.L (acquired on 1 October 2021) and Ascoli & Fermo (acquired on 1 October 2021) which are included in the 'Other' column in the table below.

This information includes the fair value of the identifiable assets and liabilities recognised as at the date of the acquisitions. Costs related to the acquisitions recognised as an expense within other operating costs in the income statement amounted to GBP1 million.

 
                                                 Rosenau 
                                               Transport  Other  Total 
                                                    GBPm   GBPm   GBPm 
--------------------------------------------  ----------  -----  ----- 
Land and building assets acquired(1)                 122      -    122 
Other tangible assets acquired                        32      -     32 
Intangible assets recognised on acquisition           43      5     48 
Trade and other receivables                           15      -     15 
Cash and cash equivalents                              4      -      4 
Goodwill recognised on acquisition                    46      3     49 
--------------------------------------------  ----------  -----  ----- 
Total assets acquired                                262      8    270 
Trade and other payables                             (7)      -    (7) 
Loans and leases                                    (28)      -   (28) 
Deferred tax liabilities(1)                         (11)      -   (11) 
--------------------------------------------  ----------  -----  ----- 
Net assets acquired                                  216      8    224 
--------------------------------------------  ----------  -----  ----- 
Cash paid during the year                            204      3    207 
Consideration deferred                                12      5     17 
--------------------------------------------  ----------  -----  ----- 
Total consideration                                  216      8    224 
--------------------------------------------  ----------  -----  ----- 
 
   1.    These fair values have been determined on a provisional basis. 

The fair value of trade debtors is equal to the gross contractual amounts receivable. A review of trade debtors did not indicate any recoverability issues.

The intangible assets recognised predominately relate to customer relationships, trademarks and brands. The goodwill of GBP49 million arising on these acquisitions is tax deductible.

Revenue generated from these businesses since the date of acquisition is GBP45 million and profit is GBP4 million. If these combinations had taken place at the beginning of the financial year, revenue generated would have been GBP126 million and the profit would have been GBP9 million.

Of the deferred consideration of GBP17 million, GBP14 million is contingent on the performance of the acquired businesses.

   10.       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 29 March 
 2021                     (69)        (52)    (7)         (14)              (23)        (47)   (17)  (229) 
Released/ 
 (charged)                  11           -      -         (81)                 2        (34)    (1)  (103) 
Reclassifications            -           -      -            -                 -         (3)      1    (2) 
Utilised                     3           -      1           25                 1          31      4     65 
Unwinding 
 of discount               (1)           -      -            -                 -           -      -    (1) 
------------------  ----------  ----------  -----  -----------  ----------------  ----------  -----  ----- 
At 27 March 
 2022                     (56)        (52)    (6)         (70)              (20)        (53)   (13)  (270) 
------------------  ----------  ----------  -----  -----------  ----------------  ----------  -----  ----- 
Disclosed 
 as: 
Current                    (8)        (52)      -         (70)               (5)        (39)    (2)  (176) 
Non-current               (48)           -    (6)            -              (15)        (14)   (11)   (94) 
------------------  ----------  ----------  -----  -----------  ----------------  ----------  -----  ----- 
At 27 March 
 2022                     (56)        (52)    (6)         (70)              (20)        (53)   (13)  (270) 
------------------  ----------  ----------  -----  -----------  ----------------  ----------  -----  ----- 
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) 
------------------  ----------  ----------  -----  -----------  ----------------  ----------  -----  ----- 
 

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 advisor, 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, published updated models during the 2021 calendar year. This new guidance indicates a significant reduction in future liabilities for such claims. Management has worked with its actuarial advisor in considering this guidance and, as a result, released GBP11 million of the provision balance, recognised as an operating specific item in the income statement (see Note 4).

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 awaits a decision on its request for permission to appeal the CoA's judgment from the Supreme Court.

Operating costs provisions

In January 2022, Royal Mail announced a management restructure affecting over 3,000 managerial level employees, mainly within its operational function. This is a significant restructure within the operational area and the functions that support it, resulting in the recognition of a provision for GBP70 million, representing voluntary redundancy compensation and associated costs for around 700 managers.

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 the provisions.

 
                                        At 27 March 2022                              At 28 March 2021 
-------------------------  -------------------------------------------  -------------------------------------------- 
                                  Expected period of settlement                Expected period of settlement 
                           -------------------------------------------  -------------------------------------------- 
                                          One       Two   After                                Two to   After 
                              Within   to two   to five    five            Within      One to    five    five 
                            one year    years     years   years  Total   one year   two years   years   years  Total 
                                GBPm     GBPm      GBPm    GBPm   GBPm       GBPm        GBPm    GBPm    GBPm   GBPm 
-------------------------  ---------  -------  --------  ------  -----  ---------  ----------  ------  ------  ----- 
Specific items 
Industrial disease 
 claims                          (8)      (3)       (9)    (36)   (56)        (6)         (3)     (9)    (51)   (69) 
Employee Free 
 Shares - NI                       -        -         -       -      -        (1)           -       -       -    (1) 
Legacy property 
 costs                             -        -         -     (6)    (6)          -           -       -     (6)    (6) 
Regulatory fine                 (52)        -         -       -   (52)       (52)           -       -       -   (52) 
-------------------------  ---------  -------  --------  ------  -----  ---------  ----------  ------  ------  ----- 
Total                           (60)      (3)       (9)    (42)  (114)       (59)         (3)     (9)    (57)  (128) 
-------------------------  ---------  -------  --------  ------  -----  ---------  ----------  ------  ------  ----- 
Operating costs 
Voluntary redundancy            (70)        -         -       -   (70)       (14)           -       -       -   (14) 
Property decommissioning         (5)      (4)       (5)     (6)   (20)        (3)         (6)     (8)     (6)   (23) 
Litigation claims               (39)     (11)       (3)       -   (53)       (44)         (2)     (1)       -   (47) 
LTIP - NI                          -      (1)         -       -    (1)          -         (2)       -       -    (2) 
Employee benefits                (1)      (1)       (1)     (6)    (9)        (2)         (2)     (1)     (5)   (10) 
Other                            (1)        -       (1)     (1)    (3)        (2)         (2)     (1)       -    (5) 
-------------------------  ---------  -------  --------  ------  -----  ---------  ----------  ------  ------  ----- 
Total                          (116)     (17)      (10)    (13)  (156)       (65)        (14)    (11)    (11)  (101) 
-------------------------  ---------  -------  --------  ------  -----  ---------  ----------  ------  ------  ----- 
 

11. Contingent liabilities and contingent assets

Contingent liability

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 details of regulatory fine in Note 10). 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.

Contingent asset

Royal Mail is pursuing a follow-on damages claim in the UK Competition Appeal Tribunal against DAF Trucks in relation to the European Commission's decision of 19 July 2016 finding that DAF participated in an illegal cartel with other European truck manufacturers. The trial is taking place in Spring 2022 with the Competition Appeal Tribunal likely to issue their judgement later in the year. If Royal Mail is successful with this claim, damages may be awarded but the amount and timing is uncertain.

12. Events after the balance sheet date

There were no events to report after the balance sheet date.

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 for, 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 for, 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. Management believes this is a useful basis upon which to analyse the business' underlying 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 27 March 2022 was GBP1,826 million compared with cumulative adjusted profit after tax of GBP2,071 million. Annual reported profit after tax showed a range of GBP620 million to GBP161 million while adjusted profit after tax showed a range of GBP595 million to GBP196 million. Pensions-related accounting and specific items can cause increased volatility in results.

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 Financial Review. A reconciliation showing the adjustments made between reported and adjusted Group results can be found in the section headed '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 March 2022                 52 weeks March 2021 
                                      ----------------------------------  ---------------------------------- 
Group (GBPm)                          Reported        Specific  Adjusted  Reported        Specific  Adjusted 
                                                         items                               items 
                                                   and pension                         and pension 
                                                 adjustment(1)                       adjustment(1) 
------------------------------------  --------  --------------  --------  --------  --------------  -------- 
Revenue                                 12,712               -    12,712    12,638               -    12,638 
Operating costs                       (12,128)           (174)  (11,954)  (12,020)            (84)  (11,936) 
People costs                           (6,665)           (174)   (6,491)   (6,554)            (84)   (6,470) 
------------------------------------  --------  --------------  --------  --------  --------------  -------- 
People costs (excluding voluntary 
 redundancy)                           (6,584)           (174)   (6,410)   (6,445)            (84)   (6,361) 
Voluntary redundancy                      (81)               -      (81)     (109)               -     (109) 
------------------------------------  --------  --------------  --------  --------  --------------  -------- 
Non-people costs                       (5,463)               -   (5,463)   (5,466)               -   (5,466) 
Distribution and conveyance costs      (3,556)               -   (3,556)   (3,483)               -   (3,483) 
Infrastructure costs                   (1,059)               -   (1,059)   (1,074)               -   (1,074) 
Other operating costs                    (848)               -     (848)     (909)               -     (909) 
Operating profit before specific 
 items                                     584           (174)       758       618            (84)       702 
Operating specific items: 
Legacy/other items                           9               9         -        12              12         - 
Amortisation of intangible assets 
 in acquisitions                          (16)            (16)         -      (19)            (19)         - 
------------------------------------  --------  --------------  --------  --------  --------------  -------- 
Operating profit                           577           (181)       758       611            (91)       702 
Profit on disposal of property, 
 plant and equipment (non-operating 
 specific item)                             72              72         -        36              36         - 
------------------------------------  --------  --------------  --------  --------  --------------  -------- 
Profit before interest and tax             649           (109)       758       647            (55)       702 
Finance costs                             (57)               -      (57)      (55)               -      (55) 
Finance income                               6               -         6        17               -        17 
Net pension interest (non-operating 
 specific item)                             64              64         -       117             117         - 
------------------------------------  --------  --------------  --------  --------  --------------  -------- 
Profit before tax                          662            (45)       707       726              62       664 
Tax charge                                (50)              62     (112)     (106)              37     (143) 
------------------------------------  --------  --------------  --------  --------  --------------  -------- 
Profit for the year                        612              17       595       620              99       521 
------------------------------------  --------  --------------  --------  --------  --------------  -------- 
Earnings per share (pence) 
Basic                                    61.7p            1.7p     60.0p     62.0p            9.9p     52.1p 
Diluted                                  61.4p            1.7p     59.7p     61.8p            9.9p     51.9p 
------------------------------------  --------  --------------  --------  --------  --------------  -------- 
 

1. Details of specific items and the pension adjustment can be found under 'Specific items and pension charge to cash difference adjustment' in the Financial Review.

Segmental reported results

The following table presents the segmental reported results, prepared in accordance with IFRS:

 
                                        52 weeks March 2022                       52 weeks March 2021 
                              ----------------------------------------  ---------------------------------------- 
                                Royal              Intragroup             Royal              Intragroup 
Group (GBPm)                     Mail      GLS   eliminations    Group     Mail      GLS   eliminations    Group 
----------------------------  -------  -------  -------------  -------  -------  -------  -------------  ------- 
Revenue                         8,514    4,219           (21)   12,712    8,649    4,040           (51)   12,638 
People costs                  (5,757)    (908)              -  (6,665)  (5,703)    (851)              -  (6,554) 
Non-people costs              (2,515)  (2,969)             21  (5,463)  (2,686)  (2,831)             51  (5,466) 
----------------------------  -------  -------  -------------  -------  -------  -------  -------------  ------- 
Operating profit before 
 specific items                   242      342              -      584      260      358              -      618 
Operating specific items(1)         8     (15)              -      (7)       11     (18)              -      (7) 
----------------------------  -------  -------  -------------  -------  -------  -------  -------------  ------- 
Operating profit                  250      327              -      577      271      340              -      611 
Profit on disposal of 
 property, plant and 
 equipment (non-operating 
 specific item)(1)                 71        1              -       72       38      (2)              -       36 
----------------------------  -------  -------  -------------  -------  -------  -------  -------------  ------- 
Earnings before interest 
 and tax                          321      328              -      649      309      338              -      647 
Net finance costs                (39)     (12)              -     (51)     (28)     (10)              -     (38) 
Net pension interest 
 (non-operating specific 
 item)(1)                          64        -              -       64      117        -              -      117 
----------------------------  -------  -------  -------------  -------  -------  -------  -------------  ------- 
Profit before tax                 346      316              -      662      398      328              -      726 
----------------------------  -------  -------  -------------  -------  -------  -------  -------------  ------- 
Tax credit/(charge)                24     (74)              -     (50)     (30)     (76)              -    (106) 
----------------------------  -------  -------  -------------  -------  -------  -------  -------------  ------- 
Profit for the year               370      242              -      612      368      252              -      620 
----------------------------  -------  -------  -------------  -------  -------  -------  -------------  ------- 
 

1. Details of specific items and the pension adjustment can be found under 'Specific items and pension charge to cash difference adjustment' in the Financial Review.

Alternative Performance Measures

This section lists the definitions of the various APMs disclosed throughout the Annual Report and Financial Statements. 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.

Adjusted operating profit

This measure is based on reported operating profit 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 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 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 
                                                     March  52 weeks March 
(GBPm)                                                2022            2021 
------------------------------------------------  --------  -------------- 
Reported operating profit before specific items        584             618 
Depreciation and amortisation                          540             554 
------------------------------------------------  --------  -------------- 
EBITDA before specific items                         1,124           1,172 
Pension charge to cash difference adjustment           174              84 
------------------------------------------------  --------  -------------- 
Adjusted EBITDA                                      1,298           1,256 
------------------------------------------------  --------  -------------- 
 

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, bonus 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 24.6% (2020-21: 19.5%) 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.

Amortisation of intangible assets in acquisitions

These 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

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

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 and GLS client cash movements. GLS client cash movements were previously presented in FCF but have now been removed as this better reflects cash movements available to the Group. As a result the comparative period has been re-presented. FCF represents the cash that the Group generates after spending the money required to maintain or expand its asset base. FCF is also shown on a pre-IFRS 16 basis as it is used to support dividend cover analysis, taking into account all cash flows related to the operating businesses.

The following table reconciles free cash flow to the nearest IFRS measure 'net cash inflow before financing activities'.

 
                                                              Re-presented 
                                                    Reported      reported 
                                                    52 weeks      52 weeks 
                                                       March         March 
(GBPm)                                                  2022          2021 
-------------------------------------------------  ---------  ------------ 
Net cash inflow before financing activities              401           887 
Adjustments for: 
Finance costs paid                                      (56)          (57) 
Movement in GLS client cash                                5          (20) 
Purchase/(sale) of financial asset investments            70          (30) 
-------------------------------------------------  ---------  ------------ 
Free cash flow                                           420           780 
-------------------------------------------------  ---------  ------------ 
Capital element of operating lease repayments(1)       (166)         (156) 
-------------------------------------------------  ---------  ------------ 
Pre-IFRS 16 free cash flow                               254           624 
-------------------------------------------------  ---------  ------------ 
 

1. The capital element of lease payments of GBP192 million (2020-21: GBP188 million) shown in the statutory cash flow is made up of the capital element of operating lease payments of GBP166 million (2020-21: GBP156 million) and the capital element of finance lease payments of GBP26 million (2020-21: GBP32 million).

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 movements in GLS client cash and the cash cost of operating specific items and to include the cash cost of property, plant and equipment and intangible asset acquisitions, net finance payments and dividends received from associates. The prior period has been re-presented to reflect the re-allocation of deferred revenue (including SITHOP) into trading working capital (included within net cash inflow from operating activities). These balances were previously excluded from in-year trading cash flow as part of other working capital movements. 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 cash flows 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'.

 
                                                              Re-presented 
                                                    Reported      reported 
                                                    52 weeks      52 weeks 
                                                       March         March 
(GBPm)                                                  2022          2021 
-------------------------------------------------  ---------  ------------ 
Net cash inflow from operating activities              1,160         1,173 
Adjustments for: 
Movement in GLS client cash                                5          (20) 
Cash cost of operating specific items                      4             4 
Purchase of property, plant and equipment              (519)         (289) 
Purchase of intangible assets                           (84)          (57) 
Dividends received from associates                         5             - 
Net finance costs paid                                  (52)          (41) 
-------------------------------------------------  ---------  ------------ 
In-year trading cash flow                                519           770 
-------------------------------------------------  ---------  ------------ 
Capital element of operating lease repayments(1)       (166)         (156) 
-------------------------------------------------  ---------  ------------ 
Pre-IFRS 16 in-year trading cash flow                    353           614 
-------------------------------------------------  ---------  ------------ 
 

1. The capital element of lease payments of GBP192 million (2020-21: GBP188 million) shown in the statutory cash flow is made up of the capital element of operating lease payments of GBP166 million (2020-21: GBP156 million) and the capital element of finance lease payments of GBP26 million (2020-21: GBP32 million).

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. 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 27 March  At 28 March 
(GBPm)                             2022         2021 
--------------------------  -----------  ----------- 
Loans/bonds                       (872)        (895) 
Leases                          (1,341)      (1,156) 
Cash and cash equivalents         1,101        1,532 
Investments                          70            - 
Client cash                          36           41 
Pension escrow (RMSEPP)              21           21 
--------------------------  -----------  ----------- 
Net debt                          (985)        (457) 
--------------------------  -----------  ----------- 
Operating leases(1)               1,292        1,079 
--------------------------  -----------  ----------- 
Pre-IFRS 16 net cash                307          622 
--------------------------  -----------  ----------- 
 

1. This amount represents leases that would not have been recognised on the Balance Sheet prior to the adoption of IFRS 16

Loans and bonds decreased by GBP23 million, largely as a result of favourable exchange rate movements on the value of bonds.

Cash and cash equivalents and Investments decreased by GBP361 million, largely as a result of the payment of GBP366 million in external dividends (2020-21: no dividends paid) and GBP201 million share buyback offset by free cash inflow of GBP420 million (2020-21: GBP780 million inflow) and by the capital element of lease repayments of GBP192 million (2020-21: GBP188 million).

Net debt excludes GBP192 million (2020-21: GBP191 million) related to the RMPP pension scheme of the total GBP213 million (2020-21: GBP212 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. The adjusted effective tax rate is considered to be a useful measure of the tax impact for the year. It approximates to the tax rate on the underlying trading business through the exclusion of specific items, including the pension charge to cash difference adjustment.

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', 'targets', 'goal', 'forecasts' or 'estimates' or similar expressions or negatives thereof.

Forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the Group's actual financial condition, performance and results to differ materially from the plans, goals, objectives and expectations set out in the forward-looking statements included in this document.

All written or verbal forward-looking statements, made in this document or made subsequently, which are attributable to the Group or any persons acting on its behalf are expressly qualified in their entirety by the factors referred to above. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements. No assurance can be given that the forward-looking statements in this document will be realised; actual events or results may differ materially as a result of risks and uncertainties facing the Group. Subject to compliance with applicable law and regulation, the Group does not intend to update the forward-looking statements in this document to reflect events or circumstances after the date of this document, and does not undertake any obligation to do so.

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FR EAFSPFDDAEAA

(END) Dow Jones Newswires

May 19, 2022 02:01 ET (06:01 GMT)

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