TIDMRMG
RNS Number : 0680J
Royal Mail PLC
06 June 2014
Royal Mail plc
6 June 2014
Publication Announcement: Annual Report and Financial Statements
2013-14
In compliance with Listing Rule 9.6.1, the Company has today
submitted a copy of the Annual Report and Financial Statements
2013-14 (the 'Annual Report') to the UK Listing Authority, which
will shortly be available for inspection via the National Storage
Mechanism which can be viewed at www.morningstar.co.uk/uk/NSM
In accordance with DTR 6.3.5(3) the Annual Report will be
available to view on the Company's website:
www.royalmailgroup.com/investor-centre/report-download-centre
A further announcement will be made for the Notice of 2014
Annual General Meeting and Form of Proxy.
In compliance with DTR 6.3.5(2), the following information is
extracted from the Annual Report and should be read in conjunction
with the Company's Preliminary Results announcement for the year
ended 30 March 2014 issued on 22 May 2014. Both documents are
available at
www.royalmailgroup.com/investor-centre/report-download-centre and
together constitute the material required by DTR 6.3.5(2) to be
communicated to the media in unedited full text through a
Regulatory Information Service. Page numbers and note references in
the text refer to page numbers and notes in the Annual Report. This
material is not a substitute for reading the Annual Report in
full.
Business Risks
The Corporate governance section describes in detail how the
Group manages its risk from the Group Board level, its respective
sub-Committees and through the organisation. Further details can be
found on pages 53 to 54.
The table below details the principal business risks, their
current status and how the Group mitigates these risks.
Principal risk Status Mitigation Link to
Strategy
================================== ==================== ========================================= ================
Changes in customer preferences
=====================================================================================================================
The letter and parcel Managing
markets are becoming the decline
more competitive, customer in letters
behaviours are constantly Being a
evolving and our competitors successful
are responding quickly parcels
to these changing demands: business
Being customer
focused
Managing
the business
successfully
Customer behaviour No change We are piloting Sunday afternoon
and Royal Mail's responsiveness - as volumes opening at around 100 Delivery
to market: Changes are broadly Offices later this summer, when
in customer behaviour, consistent we will also trial Sunday parcel
and changes to the with expectations. deliveries to home addresses
markets in which the within the M25;
Group sells its products Parcelforce Worldwide will also
and services, could launch a Sunday delivery service
result in reduced demand in June 2014 for online shoppers;
for the Group's products We launched Mailmark(TM) barcode
and services and impact technology for our large business
our forecast rates mail customers. This increases
of decline and growth our ability to track addressed
of letter and parcel letters through our network
volumes respectively. for these customers;
There is a risk that We continue to focus on our
our product offerings, advertising mail offering, both
and the customer experience on its own and in combination
we provide, may not with other media, to ensure
adequately meet evolving sustainable revenue streams
customer needs or that through customer retention and
we are unable to innovate acquisition;
or adapt our commercial We are working with the Keep
and operational activities Me Posted campaign to protect
fast enough to respond the rights of consumers to choose,
to changes in the market. without penalty, to receive
communications such as bills
and statements by post;
We continue to focus on meeting
or exceeding our Quality of
Service targets, and internal
performance targets (such as
composite parcel delivery performance);
Through our continued transformation
programme, we are seeking to
improve first time delivery
rates. This includes an emphasis
on consistency and standardisation
of key initiatives like Delivery
to Neighbour across our operations;
We continue to invest in technology
to improve our service. In April
2013, we introduced our tracked
returns service. We have also
introduced enhanced delivery
information for our Special
Delivery and Tracked offerings
and we have introduced Local
Collect, our own click and collect
service, in Post Offices; and
We have extended our network
operating hours for parcels
processing for some of our business
customers.
Economic environment: No change We have robust econometric models
Historically, there - the economic in place to
has been a correlation environment provide early warnings of changes
between economic conditions is improving to overall volumes
in the UK and Europe in line with and the profile of letter and
and the level of letter expectations. parcel volumes. We
and parcel volumes. continually review and upgrade
There is a risk that these models to better
flat or adverse economic anticipate the impact of price
conditions could impact rises and reflect the
our ability to stay increasingly deregulated market;
profitable, either and
by reducing letter
and parcel volumes We continually review our cost
or by encouraging customers base to ensure we are as efficient
to adopt cheaper service as possible.
options for sending
letters and parcels.
================================== ==================== ========================================= ================
Cost management and business transformation
=====================================================================================================================
Royal Mail must continuously Managing
become more efficient the business
and flexible in order successfully
to compete effectively
in the letter and parcel
markets:
================
Cost management: The No change The initial phase of our transformation
success of the business - due to programme, which included the
strategy relies on effective modernisation of all of our
effective control of management Delivery Offices, the automation
costs, and the delivery of non-people of letters sorting and a revision
of efficiency and other costs. of all delivery walks, is now
benefits from our transformation People costs largely complete; and
programme, whilst maintaining growth mitigated We track progress and outcomes
Quality of Service, by productivity of all
safety, and employee improvements. transformational revisions to
engagement. Non-people operational practice on a weekly
costs reduced basis to ensure completion to
due to tight time and the sharing of good
cost control. practice and lessons learned.
Quality of Service is a fundamental
consideration prior to any change.
================
Employee awareness Reduced risk Our recent agreement with the
and engagement: Lack - due to CWU includes an Agenda for Growth
of employee engagement the award to deliver change at the right
in relation to transformation of Free Shares pace and to ensure we are working
and understanding of and the new together towards agreed goals.
the need for change CWU agreement.
could mean that we,
or CWU, are unable
to execute the efficiency
changes enabled by
the pay deal.
Retaining and attracting Risk remains The Directors' remuneration
senior management: in place. report sets out the Group's
Any failure by the overarching approach to remuneration
Group to retain or in its policy (pages 59 to 63).
attract Directors and The policy sets out that the
highly skilled personnel overall remuneration package
could have a material should be sufficiently competitive
adverse effect on its to attract, retain and motivate
ability to manage its executives with the commercial
costs and transform experience to run a large, complex
the business. business in a highly challenging
context. There is a risk if
it is not.
IT transformation: No change We are actively progressing
Our current IT estate - as the and monitoring the IT
requires significant programme transformation programme. This
investment and the is progressing remains high risk due
IT transformation programme as expected. to the significant scale and
is complex and will complexity of change, and
take several years the ongoing requirement for
to complete. effective management of
Failure to improve the transition.
our IT systems or successfully
implement the IT transformation
programme would increase
the risk of security
breaches and attacks,
a material adverse
effect on the Group's
operations, and the
risk that the IT systems
might not be able to
support the business
plan.
================================== ==================== ========================================= ================
Regulatory and legislative environment, including direct delivery
=====================================================================================================================
The business operates Managing
in a regulated environment. the decline
Changes in legal and in letters
regulatory requirements
could impact our ability
to meet our targets
and goals:
Direct delivery and Increased We have proposed changes to
the Universal Service: risk - due our access contracts to
In our liberalised to unfettered help secure the provision of
postal market, other rollout of the Universal Service. Certain
operators are able direct delivery of these proposed changes are
to offer direct delivery competition subject to a Competition Act
services by cherry and Ofcom investigation by Ofcom. Under
picking easy-to-serve not bringing the terms of Royal Mail's access
urban areas, without forward a contracts, the price changes
having to adhere to review of subject to the investigation
the same high delivery the impact are suspended pending the outcome
requirements and quality of direct of that investigation; and
standards as Royal delivery
Mail. on the USO. We are preparing a regulatory
The combination of submission calling for
mandated access, unfettered Ofcom to bring forward its full
rollout of direct delivery review of direct delivery
and structural decline competition in the UK and how
in letters, poses a it will protect the
serious risk to the Universal Service from the serious
economics of the USO risk this presents.
in the UK.
Any failure or delay
by Ofcom in undertaking
a review of direct
delivery in the future,
or any failure or delay
in introducing appropriate
regulatory safeguards
to protect the Universal
Postal Service, would
be likely to undermine
the Group's future
ability to earn revenue
necessary to ensure
the sustainable provision
of the USO.
VAT exemption: Mandated No change We consider that HM Revenue
Network Access services - outcome & Customs (HMRC) has
provided by Royal Mail of judicial correctly implemented VAT legislation
are currently exempt review proceedings in compliance
from Value Added Tax pending. with European law and we are
(VAT). This VAT exemption continuing to support
is currently the subject HMRC in defending the claim.
of judicial review
proceedings. There
is a risk that the
VAT exemption on access
services could be lost
as a result of these
proceedings, thus increasing
the cost to those customers
who cannot reclaim
VAT. In this case,
end-users that use
such network access
services for distribution
of their letters may
accelerate their adoption
of e-substitution or
alternative means of
communicating with
their customers or
switch to competing
third party direct
delivery services.
Employment legislation: Increased We have processes and controls Managing
Changes to laws and risk - due to ensure that we pay all of the business
regulations relating to evolution our people correctly. If the successfully
to employment (including of case law. law is changed or elements relevant
the interpretation to the particular circumstances
and enforcement of of Royal Mail are reinterpreted
those laws and regulations) by English courts, then we will
could, directly or need to adapt to these as appropriate.
indirectly, increase
the Group's labour
costs, which, given
the size of the Group's
workforce, could have
an adverse effect on
the Group. There is
emerging European case
law which may provide
new guidance in relation
to the interpretation
of the Working Time
Directive, which subsequently
would need to be considered
by the English courts
in relation to the
implementation of that
directive through the
Working Time Regulations
1998 and UK employers'
compliance with it.
================================== ==================== ========================================= ================
Industrial relations
=====================================================================================================================
There is extensive Managing
trade union recognition the business
in respect of our workforce successfully
in the UK:
================
Industrial action: Reduced risk We have reached an agreement
There is a risk that - due to with the CWU on an
one or more material the new CWU Agenda for Growth, including
disagreements or disputes agreement. a new legally binding
between the Group and agreement, to promote industrial
its trade unions could stability and provide
result in widespread employee protections. The agreement
localised or national represents a
industrial action. joint aspiration to radically
Widespread localised improve industrial relations
or national industrial and create a can-do culture
action would cause in the interests of
material disruption customers, employees and the
to our business in Company; and
the UK and would be
likely to result in We continue to engage with both
an immediate and potentially Unite and the CWU
ongoing significant at all levels across the business,
loss of revenue for and there is constant
the Group. visibility of issues, action
Widespread localised taken and potential risks.
or national industrial
action may cause Royal
Mail to fail to meet
the Quality of Service
targets prescribed
by Ofcom, leading to
enforcement action
and fines.
================================== ==================== ========================================= ================
Related party information
This note provides details of amounts owed to and from related
parties, which include the Royal Mail Pension Plan (RMPP), the
Group's associate companies, and payments to key management
personnel. Details of the Group's principal subsidiaries and
associates are also provided.
Related party transactions
During the reporting year the Group entered into transactions
with related parties. The transactions were in the ordinary course
of business and included administration and investment services
recharged to the Group's pension plans by Royal Mail Pension
Trustees Limited of GBP6 million (2013 GBP5 million) and services
charged to the Group by its associate company, Quadrant Catering
Limited (Quadrant) of GBP22 million (2013 GBP26 million). Amounts
owed by the Group to Quadrant at 30 March 2014 were GBP2 million
(at 31 March 2013 GBP1 million owed by Quadrant to the Group).
The Group also trades with numerous HM Government bodies on an
arm's length basis. HM Government has retained a c.30 per cent
stake in Royal Mail plc on the Company's stock market flotation. HM
Government still owns 100 per cent of Post Office Limited through
its Postal Services Holding Company Limited entity. Transactions
with HM Government entities, including Post Office Limited, are not
disclosed owing to the significant volume of transactions that are
conducted.
The sales to and purchases from related parties are made at
normal market prices. Balances outstanding at the year end are
unsecured, interest free and settlement is made by cash.
Key management compensation
52 weeks 53 weeks
2014 2013
Reported Reported
GBP000 GBP000
============================================= =========== ===========
Short-term employee benefits (3,173) (3,753)
============================================= =========== ===========
Post-employment benefits - -
============================================= =========== ===========
Other long-term benefits(1) (2,654) -
============================================= =========== ===========
Total compensation earned by key management (5,827) (3,753)
============================================= =========== ===========
(1) The 2014 other long-term benefits amount consists of
GBP1,327,000 for each of the 2010 and 2011 LTIP awards that vested
at 30 March 2014.
Key management comprises Executive and Non-Executive Directors
of Royal Mail plc at 30 March 2014.
The ultimate parent and principal subsidiaries
Royal Mail plc is the ultimate parent Company of the Group. The
consolidated financial statements include the financial results of
Royal Mail Group Limited and the other principal subsidiaries
listed below:
% equity % equity
Country of interest interest
Company Principal activities incorporation 2014 2013
============================ ========================= ================ ========== ==========
General Logistics Systems Parcel services holding
B.V. company Netherlands 100 100
============================ ========================= ================ ========== ==========
Royal Mail Estates Limited Property holdings United Kingdom 100 100
============================ ========================= ================ ========== ==========
Royal Mail Investments
Limited Holding company United Kingdom 100 100
============================ ========================= ================ ========== ==========
Romec Limited Facilities management United Kingdom 51 51
============================ ========================= ================ ========== ==========
Associates
% %
Country of ownership ownership
Company Principal activities incorporation 2014 2013
=========================== ====================== ================ =========== ===========
Quadrant Catering Limited Catering services United Kingdom 51 51
=========================== ====================== ================ =========== ===========
G3 Worldwide Mail N.V.
(Spring) Mail services Netherlands 32.45 32.45
=========================== ====================== ================ =========== ===========
The majority of Board membership and voting power in Quadrant
Catering Limited is held by the other investor company, hence it is
not a subsidiary.
The investment in Quadrant Catering Limited is held by Royal
Mail Group Limited, the investment in G3 Worldwide Mail N.V.
(Spring) was held by Royal Mail Investments Limited until its
disposal on 2 April 2013.
The Company has taken advantage of the exemption under section
410 of the Companies Act 2006, a schedule of interests in all
undertakings will be filed with the Annual Return.
Directors' Responsibility Statement
Each of the Directors, whose names and functions are disclosed
on page 38, confirms that, to the best of their knowledge:
-- The financial statements, prepared in accordance with
applicable accounting standards, give a true and fair view of the
assets, liabilities, financial position and profit of the Company
and the Group taken as a whole; and
-- The Management report, which is incorporated into the
Strategic report, and the Directors' report includes a fair review
of the development and performance of the business and the Group
taken as a whole, together with a description of the principal
risks and uncertainties that they face.
In addition, the Board considers that the Annual Report and
Financial Statements, taken as a whole, is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the Company's performance, business model
and strategy.
Royal Mail plc
Media
Beth Longcroft
Phone: 020 7449 8241
Email: beth.longcroft@royalmail.com
Royal Mail press office out of hours: 0203
338 1007
Investor relations
Catherine Nash
Phone: 020 7449 8183
Email: investorrelations@royalmail.com
This information is provided by RNS
The company news service from the London Stock Exchange
END
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