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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END
FR EAFSPFDDAEAA
(END) Dow Jones Newswires
May 19, 2022 02:01 ET (06:01 GMT)
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