Connecting Customers,
Companies and Countries
Annual Report and Financial Statements
2021-22

Strategic Report

Introduction
2021-22 has been another challenging year. Despite this, in line
withour purpose, we have continued to connect customers, companies
and countries. We have also made some strategic progress, however
more needs to be done.
We need to accelerate and broaden the transformation of Royal Mail to meet the demands of our
customers, deliver financial benefits at a faster pace and support sustainable growth. Given the
rapid pace of change in our market, enhancements in technology and the backdrop of economic
uncertainty, this is more important than ever. We also need to continuetoharness GLS’ growth
opportunities in a profitable way and ensure that GLS leverages its business model to become
more global, digital and diverse.
Demonstrating leadership in our environmental, social and governance (ESG) agenda is also
acorepriority – not only for our business, but for all our stakeholders. We are continuously
reviewing everything we do through this lens, so that we can grow our contribution to society,
operate responsibly and provide the sustainable products and services our customers
increasingly want.
Contents
Strategic Report
01 Introduction
02 Who we are
03 Why invest
04 Chair’s statement
06 Chief Executive Officers’ operating reviews
10 Our marketplace
12 Our business model
14 Our strategy and progress
24 Measuring our performance
26 Our stakeholders
28 Section 172 statement
30 ESG review
46 TCFD statement
52 Risk management and our principal
risksand uncertainties
62 Viability statement
64 Financial review
76 Non-financial information statement
Corporate Governance
79 Chair’s introduction
81 Application of Code principles
82 Board of Directors
84 Board leadership and company purpose
91 Division of responsibilities
92 Composition, succession and evaluation
95 Nomination Committee Report
99 Audit and Risk Committee Report
107 Environmental, Social and Governance
Committee Report
110 Directors’ Remuneration Report
142 Directors’ Report
146 Statement of Directors’ Responsibilities
Financial Statements
148 Independent auditor’s report
157 Consolidated income statement
158 Consolidated statement of
comprehensiveincome
159 Consolidated balance sheet
161 Consolidated statement of changes
inequity
162 Consolidated statement of cash flows
Notes to the consolidated financial
statements
164 Royal Mail plc – Parent Company
financialstatements
Additional Information
227 Shareholder information
228 Glossary of alternative
performancemeasures
IBC Forward-looking statements
Strategic Report Corporate Governance Financial Statements Additional Information
Royal Mail plc
Annual Report and Financial Statements 2021-22
1

We are an international
business that provides postal
and delivery services across
our extensive networks.
Our purpose
To connect customers, companies and countries.
Our values
Our values, which shape our culture, underpin everything we
do. We focus on our customers and on providing reliable and
convenient value-for-money services. We want our people
tobe proud to work for our businesses.
1. 2021-22 Group revenue includes £21 million which relates to
intragroup trading between Royal Mail and GLS.
2.. Parcel revenue includes GLS freight revenue.
2021-22 Performance Highlights
Royal Mail
Be positive – about
whatwe can achieve.
Be brilliant – for
ourcustomers.
Be part of it – each one
ofus is responsible.
GLS
Reliability
Security
Transparency
Flexibility
Sustainability
Our ambition
To build a more balanced and diverse parcels-led,
international business.
Our business
The Group consists of two principal operations. Our UK-
based operation, which includes Royal Mail and Parcelforce
Worldwide (Royal Mail), and our international operation,
General Logistics Systems (GLS).
Where we operate
Royal Mail operates throughout the UK and offers letter
andparcel delivery services internationally. GLS has a
growing international footprint which currently includes
around 40 countries and nation states.
Group operating profit split
57% 43%
R
oyal Mail
£250m
GL
S
£327m
£577m
Group revenue split
1
33% 67%
R
oyal Mail
£8,514m
GL
S
£4,219m
£12,712m
Group revenue split (parcels and letters)
2
29% 71%
Parcels £8,998m
Letters £3,714m
£12,712m
Strategic Report
Royal Mail plc
Annual Report and Financial Statements 2021-22
2
Who We Are

A compelling business combination focused on fulfilling our purpose and long-term
value creation.
Two geographically diverse and
cashgenerative businesses
 Extensive market presence spanning
around 40countries and nation states.
 Dual CEO structure ensures greater
strategic focus and effective execution.
 Good cash generation to support growth
opportunities across both businesses.
Continuously evolving
 Transforming Royal Mail into a parcels-led
business with increased automation and
improved operational efficiency.
 Strengthening GLS’ position in cross-border
and 2C, securing its leading position in 2B
markets and implementing innovative and
sustainable solutions centred around
customer needs.
Clear capital allocation policy supports shareholder value
Read more about our capital allocation policy on page 73.
Invest in
the business
£2.0bn
over last five years
Maintain investment
grade credit rating
2
BBB
Pay progressive
ordinarydividend
£884m
over last five years
M&A
activity
£463m
over last five years
Excess cash returned
toshareholders
£400m
over last five years
Read more about our business model on page 12 and 13.
Read more about our strategic progress on pages 14 to 23.
Read more about the trends driving growth in our markets on page 10 and 11.
Read more about our ESG approach on pages 30 to 45.
Well positioned to capture
futuregrowth
 Unparalleled capability to deliver to every
address in the UK as the sole designated
Universal Service Provider
1
.
 Strong international network, local
expertise and an agile business model.
 Well-recognised brands.
Sustainability and responsibility
embedded in our strategies
 Offering environmentally
sustainablesolutions for our
customersand playing our part in
thetransition to a low-carbon future.
 Providing a safe, healthy and fair working
environment for our people.
 Operating with integrity and transparency.
1. Under the Postal Services Act 2011, Ofcom is the regulator for postal services in the UK. Ofcom’s primary regulatory duty for postal services is to secure the provision of the Universal Postal Service.
Ofcom has designated Royal Mail as the Universal Service Provider.
2. S&P rating as at May 2022.
Strategic Report Corporate Governance Financial Statements Additional Information
Royal Mail plc
Annual Report and Financial Statements 2021-22
3
Why Invest

2021-22 Group Financial Highlights

Revenue

1

£12,712m

2020-21: £12,638m

Reported operating profit

1

£577m

2020-21: £611m

Adjusted operating profit

2

£758m

2020-21: £702m

Adjusted basic earnings per share

2

60.0p

2020-21: 52.1p

FY dividend

20p

2020-21: 10p

Net debt

2

£985m

2020-21: £457m

1. Reported result. Reported results are prepared in accordance with IFRS.

2. APM. APMs are not defined under IFRS. The APMs used to describe the

Group’s performance, including a reconciliation to reported results, are

explained onpages 228 to 232.

3. 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.

Keith Williams

Non-Executive Chair

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 £577 million on a reported basis (2020-21: £611 million). Group

adjusted operating profit was £758 million (2020-21: £702 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.

Strategic Report

Royal Mail plc

Annual Report and Financial Statements 2021-22

4

Chair’s Statement

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.€500 million of pre-IFRS 16 free cash flow

3

in the

firsttwo years against ourtarget of €1 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

£400 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.

Outlook

Our detailed Outlook statement is included on pages 74 and 75.

Keith Williams

Non-Executive Chair

18 May 2022

“ It is more important than ever that

weaccelerate the transformation of

RoyalMail and continue to harness

GLS’growth opportunities.”

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

5

Royal Mail parcel/letter revenue split %

56% 44%

2020-21 split:

59%/41%

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 £8,514 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

£416 million (2020-21: £344 million). Adjusted operating profit

margin

2

was 4.9%, up 90 basis points.

In-year trading cash inflow

2

pre-IFRS 16 decreased by £164 million

to £178 million. Gross capital expenditure increased by £231 million

to £441 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

Simon Thompson

CEO Royal Mail

2021-22 Performance Highlights

Revenue

1

£8,514m

2020-21: £8,649m

Adjusted operating profit

2

£416m

2020-21: £344m

1. Reported result. Reported results are prepared in accordance with IFRS.

2. APM. APMs are not defined under IFRS. The APMs used to describe the

Group’s performance, including a reconciliation to reported results, are

explained onpages 228 to 232.

Strategic Report

Royal Mail plc

Annual Report and Financial Statements 2021-22

6

CEO Royal Mail Operating Review

pandemic has resulted in a step up in domestic parcel volumes

driven by increased e-commerce activity. Volumes for ourpremium

products, Tracked 24® / 48® and Tracked Returns®, continued to

growby 17% in 2021-22 (2020-21: 79%). Excluding theeffect of test

kits, Tracked 24® / 48® and Tracked Returns®, 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.

Supporting the COVID-19

testing programme

Since April 2020 Royal Mail has been a key partner for the

Government’s COVID-19 testing programme and played a

crucial role in the movement of test kits. During the year

thebusiness serviced up to 1.1 million test kits a day and

effectively expanded capacity and prioritised delivery and

collection in response to increased demand. As part of this

programme, Royal Mail has operated a unique network of

35,000 priority postboxes for the rapid return of test kits

tolaboratories.

Costs

Total adjusted operating costs decreased 2.5% to £8,098 million

(2020-21: £8,305 million).

Adjusted people costs were down 0.6%. The management restructure

programme, which led to a £93 million one off restructuring charge in

2020-21, delivered a sustainable £115 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 £59 million, at the lower end of our revised guidance range

and below our initial target of over £100 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 £18 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 £122 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 £70 million in the fourth quarter. This

programme is expected to deliver annualised benefits of

£40 million, with £30 million in 2022-23.

Non-people costs decreased 6.4%. Our £200 million two-year

non-people cost saving plan was delivered, with £112 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

£35 million and volume related savings.

Simon Thompson

CEO Royal Mail

18 May 2022

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

7

GLS B2C/B2B volume split %

55% 45%

2020-21 split:

57%/43%

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 €500 million in 2024-5 and €1 billion cumulative

pre-IFRS 16 free cash flow

3

(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£4,219 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 £207 million

andfavourably impacted costs by £191 million, resulting

inareduction in operating profit of £16 million.

We continue to invest in growth, with capital expenditure of

£162 million (2020-21: £136 million). In-year trading cash flow

remained strong, at £239 million, compared with £330 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 impact

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.

Martin Seidenberg

CEO GLS

2021-22 Financial Highlights

Revenue

1

£4,219m

2020-21: £4,040m

Adjusted operating profit

2

£342m

2020-21: £358m

1. Reported result. Reported results are prepared in accordance with IFRS.

2. APM. APMs are not defined under IFRS. The APMs used to describe the

Group’s performance, including a reconciliation to reported results, are

explained onpages 228 to 232.

3. 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.

Strategic Report

Royal Mail plc

Annual Report and Financial Statements 2021-22

8

CEO GLS Operating Review

“ We are committed to

maximising GLS’ potential

and we are already

delivering the benefits

of our‘Accelerate GLS’

growth strategy.”

Enhancing operational efficiency

GLS is making active use of technology to improve

operations. In Germany, proactive performance

management in the last mile is enabled through a dispatch

app making it easier for dispatchers to track performance

metrics and take quick and necessary actions. Additionally,

a digital tool for depot yard management, a line haul app for

drivers, GPS tracking and a transport partner portal for

easier communication have been introduced for better

visibility and increased efficiency.

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 performance in Hungary, Czech Republic and Croatia.

Martin Seidenberg

CEO GLS

18 May 2022

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

9

A number of trends have been driving structural change within our letters

andparcel markets. Since the pandemic parcel volume has increased while

letter volume has declined. In addition, customer demand for convenient and

sustainable services has continued to grow.

Other factors affecting the Group

In the UK, Ofcom regulates Royal Mail’s Universal Service

obligations and is currently undertaking a review of the existing

framework. Further information about this review and our

response is included on page 90. In addition, there is extensive

trade union membership across our UK workforce, and it is

important that we work closely with our unions, CWU and

Unite/CMA. Further information is included on page 19.

The Group is exposed to an anticipated fiscal tightening across

operating countries via possible changes to business rates,

employment taxes, minimum wage legislation, tax policies

including subcontractors and apotential online UK sales tax.

Key trends driving structural change

Digitalisation

Savvy customers

Sustainability

E-commerce penetration continues to grow as retail

stores invest in digital platforms over physical

presence. As businesses increasingly rely on digital

forms of advertising and customer communications,

UK letter volume decline continues.

Customers want fast and convenient delivery and

pick-up as well as great quality of service, all at an

affordable price.

People of all ages are now seeking to engage with

responsible businesses who provide more sustainable

products and services.

As the UK’s sole Universal Service

Provider, we are well placed to capitalise

on technological advancements in our

market. We are investing in data and

technology to maximise the parcel

market growth opportunity including

increasing automation across our

businesses, developing innovative

customer apps and enhancing our

logistical and customs procedures

toease international shipping.

Letter delivery will continue to be

animportant part of Royal Mail’s

offering. We have launched unique

barcoded stamps which will enable the

introduction of added security features

and pave the way for innovative services

for our customers.

Read more on pages 14 to 23.

At Royal Mail, improving and simplifying

our customer offering is a strategic

priority. We now have three product

ranges to make it easier for customers

to choose the products that best meet

their needs. We are also continuing to

enhance our same-day, next-day and

Sunday delivery services through

improved products and features, and

making our doorstep parcel collection

service, Parcel Collect, more accessible

and convenient. The Royal Mail App has

also been relaunched to make it simpler

and more intuitive.

At GLS, we are introducing more

customer service points and expanding

our parcel locker footprint.

In response to growing demand

forconsistent high-quality service, we

areenhancing our tracking services

across both businesses, including more

accurate delivery slots and in-flight

delivery options through a simple text

message or email.

Recognising the impact our operations

have on society and the continuing

growth in demand for sustainable

products and services provided by

trusted and responsible businesses,

weare increasing our focus on

sustainability. During the year the

Boardapproved new Group ESG

Principles (see page 28) and Royal

Mailand GLS both updated their

environmental strategies,including

setting new ambitions to reduce

GHGemissions to zero by 2045.

(see pages 32 and 33).

As a large-scale employer in the UK

andEurope, we play an essential role

inthe communities where we operate,

providing a safe, fair and equal

opportunity environment to our people.

Read more on pages 30 to 45.

Trend Our response

57%

growth in UK e-commerce

sales 2019-2021

1

.

43%

of UK retail sales (excl. food &

fuel) now digital

1

.

87%

of UK customers prefer

homedelivery

2



44%

of e-shoppers in Denmark

prefer to use either a parcel

shop or locker

3

.

70%

UK consumers would prefer

acarbon-free delivery over

atraditional delivery

4



1. Office for National Statistics Retail Sales, 2019-2021.

2. IMRG Consumer Home Delivery Review, 2021.

3. PostNord E-commerce in Europe, 2020.

4. IMRG Consumer Home Delivery Review, 2021.

5. Based on competitors’ 2020 and 2021 published reports.

Strategic Report

Royal Mail plc

Annual Report and Financial Statements 2021-22

10

Our Marketplace

In response, we are focused on building a parcels-led sustainable business that

meets customers’ needs.

Launching innovative apps

In January 2022, the Royal Mail App was upgraded to include a

number of new and improved features, including options to change

delivery details while parcels are in transit, the ability to buy postage

online and access information about the environmental impact

ofthe item being delivered. Using theapp customers can also

contact dedicated customer experience agents. The Royal Mail

Apphas been downloaded by millions of users and has had

aniOSrating of 4.7 on the App Store and a top three ranking

within the ‘Lifestyle’ category.

GLS is continuing to launch new apps in various countries,

including an app in Denmark with live tracking. It was instantly

number 1 in the App Store’s ‘Lifestyle’ category and downloads

reached half a million within a few months. In Spain, the

consignee app was upgraded to incorporate a number of new

features, including a more convenient returns service and

information about emission-free deliveries.

Expanding GLS’ PUDO network

In response to increased customer demand, GLS is

continuing to invest in its pick-up and drop-off (PUDO)

network ofparcel shops and parcel lockers. Its extensive

omni-channel mix of last mile delivery solutions covers

mostof Europe including Spain, the Netherlands, Belgium,

Germany, Austria, Denmark, Hungary and Poland. In the

coming year, new parcel shops and parcel lockers will be

added to GLS’ European network.

Offering sustainable services

With its unparalleled network of over 90,000 postmen

andwomen and the largest electric fleet of around 1,600

vehicles across UK delivery companies, Royal Mail offers

customers the lowest reported emission delivery option

ofany major UK parcel operator

5

, with CO

2

e per parcel

averaging 205grams(g) compared with thereported

emissions ofindustrycompetitors between c.300-500g

perparcel. Wehave set ourselves a stretching long-term

ambition toreduce our emissions to50g per parcel.

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

11

48

TRACKED

Delivered

How we create value

Customer centricity

We provide reliable, convenient and

value-for-money services that customers

want. See pages 15 to 17.

Our people

Our people play a key role in our business.

Fostering a fair, rewarding and values-based

culture and rebuilding trust withour people and

unions is essential totransforming our business.

Our customers

We connect customers,

companies and countries.

c.31m

UK addresses

>240,000

European customers

1 in 175 people

employed by Royal Mail in the UK

1

1. The Centre for Economics and Business Research (Cebr) research, conducted for Royal Mail in 2022,

comprisingdirect and indirect contributions.

Our brands

Royal Mail and GLS are strong

andrenownedbrands.

Our people

We offer secure, fairly-paid employment with

long-term prospects and career development.

Transformation

In response to structural market changes,

wearebuilding a more balanced, international,

parcels-led Group.

Underpinned by

Sustainability and responsibility are embedded in how we operate

We seek to operate in a sustainable and responsible way. See pages 30 to 45. Our stakeholders are integral to our success and we engage with

themtounderstandtheir issues and concerns. See pages 26 to 29.

Value delivered

Strategic Report

Royal Mail plc

Annual Report and Financial Statements 2021-22

12

Our Business Model

48

TRACKED

Delivered

73,000 jobs

indirectly supported by Royal Mail

inthewider economy

1

£11.8bn

gross value added by Royal Mail

(directandindirect contribution)

1

20p per share

full year dividend recommended

fortheyearended 27 March 2022

Our extensive network

Royal Mail has an unparalleled network,

including c.1,200 customer service points able

todeliverto every address in the UK six days

aweek. GLS is one of the largest ground-based

deferred parcel operators in Europe. With over

1,600 depots, it has a growing presence in

NorthAmerica and a wide network of partners

across the world.

Our suppliers and

business partners

We provide employment

across our supply chain.

Our financial position

Our strong balance sheet, good cash generation

and clear capital allocation policy enable us to

invest in our business to transform and grow in

sustainable ways.

Our communities

and society

We play an essential role in the

communitieswhere we operate.

Our technology

We provide a range of convenient delivery,

tracking and redirection options through our

apps. Automation levels across Royal Mail

areincreasing. Parcel automation is now at

50%,upfrom 12% in 2018-19. GLS’ automated

operations contribute to the efficient and

fastprocessing of parcels.

Our shareholders

We generate returns.

Growth

We are harnessing market trends to capture

growthopportunities. See pages 10 and 11.

Quality of Service

We invest to improve service levels

andmaintaincustomer trust.

Effective governance and risk management underpin everything we do

Effective governance contributes to the Group’s long-term success while risk management processes and controls protect

thevaluewecreate.See pages 78 to 141 and pages 52 to 61.

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

13

To generate value for stakeholders, we are focused on building a more

balanced and diverse parcels-led, international business. Recognising

that Royal Mail and GLS have different market positions, strengths

andopportunities, we have developed separate strategies to drive

sustainable growth in each business and at all times meet changing

customer needs.

Royal Mail

Objectives

Improve and simplify our customer offering

through great quality of service, and easy to

understand and simple to use products.

Rebuild trust through a positive step

changein our relationships with our

peopleand our unions.

Grow our business, our share and the

marketthrough greater capacity and

newinnovative products and services.

KPIs

 Group revenue

 Group adjusted operating profit

 Royal Mail adjusted operating profit margin

 Lost time accident frequency rate

Read more on page 24 and 25.

Principal risks

Read more on pages 56 to 61.

1 111098765432

1 111098765432

Read more on pages 56 to 61.

KPIs

 Group revenue

 Group adjusted operating profit

 GLS adjusted operating profit

 GLS Accelerate free cash flow

Read more on page 24 and 25.

Principal risks

GLS

Objectives

Strengthen GLS’ top position

inthecross-border deferred

parcelsegment.

Strongly position GLS in the 2C

parcelmarket, whilst securing its

leading position in the 2B segment.

Implement innovative digital

andsustainable solutions that are

centred around customer needs.

Strategic Report

Royal Mail plc

Annual Report and Financial Statements 2021-22

14

Our Strategy and Progress

Focus on customer

trust and growth

Making our services more convenient

In November 2021, Royal Mail enhanced its popular Parcel Collect

service with posties delivering pre-printed postage labels to

customers who need them. This makes Parcel Collect even more

convenient and accessible, and supports customers without a

printer. Since its launch in October 2020, the service has gained

momentum and has processed over five million parcels.

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

15

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 £112 million of

non-people cost savings, in line with our target of c.£110 million

in2021-22 and £200 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.

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

£100+ 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 £110 million of non-people cost savings.

“ 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.”

Strategic Report

Royal Mail plc

Annual Report and Financial Statements 2021-22

16

Our Strategy and Progress continued

 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

1

.

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.

1. Based on competitors’ 2020 and 2021 published reports.

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.

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

17

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.

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.

Changing our culture

andworkingpractices

Initiatives to improve working practices are being

embedded across Royal Mail. To allow delivery office

managers to spend more time with their teams, our

‘Dayinthe Life Of’ (DILO) programme is now operating

inalldelivery offices. To date, this programme has

removedsignificant amounts of reporting requirements

and administration, reducing the number of policies

fromover 200 to 16. 1.6 million hours of managers’ time

hasbeen repurposed and is now being spent focusing on

moreeffective team management and customer service.

Strategic Report

Royal Mail plc

Annual Report and Financial Statements 2021-22

18

Our Strategy and Progress continued

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 £59 million

ofbenefits, at the low end of our revised guidance range and less

than the £100+ 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.

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.

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

19

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 £350 million and continued investment in the business.

Ongoing investment in our network will be around £350 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.

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.

Transforming our operations

todrivegrowth

In June 2022, we will open our first super hub in Warrington.

The size of 4.5 football pitches, the North West hub has the

capacity to sort over 800,000 parcels a day. Parcel sortation

is 100% automated at the hub, with parcels being processed

at a rate of around 40,000 an hour. During the year, new

parcel sorting machines were installed at five sites.

Automated processes sort parcels up to four times more

quickly than manual sorting and these developments put us

well on track to achieve our target of 70% automation in our

UK parcels business by 2022-23 and 90% by 2023-24.

Strategic Report

Royal Mail plc

Annual Report and Financial Statements 2021-22

20

Our Strategy and Progress continued

Accelerating GLS

Strengthening our top position in the

cross-border deferred parcel segment

We have continued to expand our ShopReturnService.

Onlineretailers are now able to offer this easy and

convenientreturn service to their consignees in Sweden

andtheBalticcountries. As a result of our strong European

PUDOinfrastructure, as of March 2022, return shipments

canbedroppedoff at parcel shops in 24 countries.

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

21

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.

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 hub 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.

Strengthening our

internationalcapabilities

During the year, we have upscaled our network capacity

andfootprint. We have invested in over 100 hubs and depots

to expand capacity and upgrade technology, including a new

depot in Granada, Spain and an extended hub in Jihlava,

Czech Republic. Both facilities became operational in

October 2021 and were critical in dealing withhigh volumes

during the busy December peak season.

Strongly positioning in 2C market

andsecuring position in 2B segment

To increase brand awareness in the fast changing parcel

delivery market, GLS has refreshed its brand identity.

Building on GLS’ successful heritage, the new branding

reflects the business’ fresh, dynamic and flexible approach

and its increasing digital and technological capabilities.

GLS’ enhanced marketing activities have also increased

market visibility.

Strategic Report

Royal Mail plc

Annual Report and Financial Statements 2021-22

22

Our Strategy and Progress continued

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 macroeconomic environment,

globalGDPand parcel growth. Therefore the 2022-23 operating

profit isforecasted to be in the range of €370 million to €410 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.

Launching more convenient

customersolutions

GLS is working on a number of digital solutions to increase

customer convenience. Recently GLS Germany launched a

live tracking app thatsignificantly enhances the customer’s

delivery experience.Using the technology, customers can

now trackthe status of their parcel delivery in real-time,

and makechanges to delivery dates and shipping addresses

while parcels are in transit. During January 2022, the app

had over four million hits.

Responding to changing

customerneeds

We want to make it easy for people to send and receive

parcels, whether across borders or within the same city,

whilst protecting the environment for future generations.

Our long-term goal is to become an emissions-free company

and we have the ambition to reduce our emissions to zero

by2045. We have set up ourcarbon emission compensation

programme to offset unavoidable emissions stemming

from our European GLS-operated sites and the entire journey

of GLS’ parcels. We have teamed up with ClimatePartner to

support projects that prevent CO

2

from being emitted or

help to bring down emissions through natural CO

2

sinks.

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

23

During the year we revised the KPIs we use to assess the Group’s performance.

Therevisions include the introduction of a new adjusted operating profit margin

metric for Royal Mail and new GLS specific measures. These new metrics better

demonstrate the deliverability of each business’ strategy and, in particular,

ourprogress against our efficiency and profitable growth objectives.

Group revenue

1

Group adjusted operating profit

2

Royal Mail adjusted operating profit

margin

2

Lost time accident frequency rate

(LTAFR) per 100,000 hours worked

3

GLS adjusted operating profit in Euros



GLS Accelerate free cash flow

4, 5

£12,712m £758m 4.9% 0.54 €402m €213m

2020-21 £12,638m

£10,840m

2021-22 £12,712m

2019-20

£702m

£325m

£758m

2020-21

2021-22

2019-20

4.0%

1.5%

4.9%

2020-21

2021-22

2019-20

2020-21 0.39

0.38

2021-22 0.54

2019-20

2020-21 €401m

€238m

2021-22 €402m

2019-20

2020-21 €307m

2021-22

€213m

Relevance Relevance Relevance Relevance Relevance Relevance

Demonstrates revenue growth across

RoyalMail and GLS.

Our primary measure of business performance. Demonstrates efficiency and our

focusondriving profitable growth.

Targets a continually improving safety culture

for employees, customers and communities.

Demonstrates efficiency and

profitablegrowth.

Accelerate strategy targets around €1 billion

accumulated freecash flow generation over

the five years 2020-21 to2024-25.

How we calculate How we calculate How we calculate How we calculate How we calculate How we calculate

Total reported Group revenue. Reported operating profit excluding pension

charge to cash difference adjustment and

operating specific items (see page 231).

Adjusted operating profit as a proportion

ofrevenue in percentage terms.

Total number of accidents resulting in an

absence on the next day or shift, per 100,000

hours worked.

Adjusted operating profit before specific

items, inEuros.

Pre-IFRS 16 in-year trading cash flow plus

disposal proceeds, in Euros.

Performance in 2021-22 Performance in 2021-22 Performance in 2021-22 Performance in 2021-22 Performance in 2021-22 Performance in 2021-22

 Group revenue was £12,712 million,

representing growth of 0.6% year-on-year,

and 17.3% compared with 2019-20.

 As we emerged from COVID-19 restrictions,

the percentage of group parcel revenue

declined as non-essential retail reopened.

However, parcel revenue is still significantly

higher than prior to the pandemic.

 In Royal Mail, revenue fell year-on-year

by1.6%, with a decline in parcel revenue

partially offset by growth in letter revenue,

which recovered from the deterioration

experienced during the pandemic.

 In GLS, revenue grew 4.4% year-on-year in

Sterling terms, driven by both domestic and

international parcel volumes and higher

freight revenue. Parcel volume growth was

driven by a recovery in B2B and continued

growth inB2C volumes, albeit at a lower

rate compared to the prior year.

 Group adjusted operating profit grew by

£56 million to £758 million.

 Profitability improved at Royal Mail,

primarily due to the delivery of a number of

cost saving initiatives which offset some of

the headwinds experienced in the year.

 GLS adjusted operating profit was broadly

flat in Euro terms, but declined by 4.5% in

Sterling terms due to the strengthening of

Sterling during the year. Despite good

revenue growth, inflationary cost

pressures resulted in margin dilution.

 Royal Mail adjusted operating profit margin

grew 90 basis points to 4.9%.

 Margin improvement was driven by the

recovery in letter revenue, cost saving

initiatives, including the Pathway to

Change agreement, and cost reduction

programmes initiated in the prior year.

Wealso saw reductions in COVID-19

related costs and international volume-

related costs.

 These were partially offset by increased

pay and other operational costs.

 LTAFR increased by 38.5% compared to the

previous year.

 Whilst absence associated with accidents

increased, the number of most severe

incidents decreased by 10% and our total

accident frequency rate reduced by 7.2%.

 Performance was in line with revised

guidance given in January 2022.

 Adjusted operating profit was broadly

flatyear-on-year as revenue growth was

offset by costs increases due to inflation

and volumegrowth.

 GLS Accelerate free cash flow of

€213 million remained robust, but below

the unusually high level of the prior year

which benefited from a strong positive

working capital movement.

 GLS Accelerate free cash flow included

€190 million of capex and a step-up in tax

payments as assessments from the prior

year came through.

Link to strategy Link to strategy Link to strategy Link to strategy Link to strategy Link to strategy

Strategic Report

Royal Mail plc

Annual Report and Financial Statements 2021-22

24

Measuring Our Performance

Royal Mail

Customer Connect Europe

Trust

Inspire the marketGrowth

Strengthen 2C parcel market

position and lead in 2B

GLS

Group revenue

1

Group adjusted operating profit

2

Royal Mail adjusted operating profit

margin

2

Lost time accident frequency rate

(LTAFR) per 100,000 hours worked

3

GLS adjusted operating profit in Euros



GLS Accelerate free cash flow

4, 5

£12,712m £758m 4.9% 0.54 €402m €213m

2020-21 £12,638m

£10,840m

2021-22 £12,712m

2019-20

£702m

£325m

£758m

2020-21

2021-22

2019-20

4.0%

1.5%

4.9%

2020-21

2021-22

2019-20

2020-21 0.39

0.38

2021-22 0.54

2019-20

2020-21 €401m

€238m

2021-22 €402m

2019-20

2020-21 €307m

2021-22

€213m

Relevance Relevance Relevance Relevance Relevance Relevance

Demonstrates revenue growth across

RoyalMail and GLS.

Our primary measure of business performance. Demonstrates efficiency and our

focusondriving profitable growth.

Targets a continually improving safety culture

for employees, customers and communities.

Demonstrates efficiency and

profitablegrowth.

Accelerate strategy targets around €1 billion

accumulated freecash flow generation over

the five years 2020-21 to2024-25.

How we calculate How we calculate How we calculate How we calculate How we calculate How we calculate

Total reported Group revenue. Reported operating profit excluding pension

charge to cash difference adjustment and

operating specific items (see page 231).

Adjusted operating profit as a proportion

ofrevenue in percentage terms.

Total number of accidents resulting in an

absence on the next day or shift, per 100,000

hours worked.

Adjusted operating profit before specific

items, inEuros.

Pre-IFRS 16 in-year trading cash flow plus

disposal proceeds, in Euros.

Performance in 2021-22 Performance in 2021-22 Performance in 2021-22 Performance in 2021-22 Performance in 2021-22 Performance in 2021-22

 Group revenue was £12,712 million,

representing growth of 0.6% year-on-year,

and 17.3% compared with 2019-20.

 As we emerged from COVID-19 restrictions,

the percentage of group parcel revenue

declined as non-essential retail reopened.

However, parcel revenue is still significantly

higher than prior to the pandemic.

 In Royal Mail, revenue fell year-on-year

by1.6%, with a decline in parcel revenue

partially offset by growth in letter revenue,

which recovered from the deterioration

experienced during the pandemic.

 In GLS, revenue grew 4.4% year-on-year in

Sterling terms, driven by both domestic and

international parcel volumes and higher

freight revenue. Parcel volume growth was

driven by a recovery in B2B and continued

growth inB2C volumes, albeit at a lower

rate compared to the prior year.

 Group adjusted operating profit grew by

£56 million to £758 million.

 Profitability improved at Royal Mail,

primarily due to the delivery of a number of

cost saving initiatives which offset some of

the headwinds experienced in the year.

 GLS adjusted operating profit was broadly

flat in Euro terms, but declined by 4.5% in

Sterling terms due to the strengthening of

Sterling during the year. Despite good

revenue growth, inflationary cost

pressures resulted in margin dilution.

 Royal Mail adjusted operating profit margin

grew 90 basis points to 4.9%.

 Margin improvement was driven by the

recovery in letter revenue, cost saving

initiatives, including the Pathway to

Change agreement, and cost reduction

programmes initiated in the prior year.

Wealso saw reductions in COVID-19

related costs and international volume-

related costs.

 These were partially offset by increased

pay and other operational costs.

 LTAFR increased by 38.5% compared to the

previous year.

 Whilst absence associated with accidents

increased, the number of most severe

incidents decreased by 10% and our total

accident frequency rate reduced by 7.2%.

 Performance was in line with revised

guidance given in January 2022.

 Adjusted operating profit was broadly

flatyear-on-year as revenue growth was

offset by costs increases due to inflation

and volumegrowth.

 GLS Accelerate free cash flow of

€213 million remained robust, but below

the unusually high level of the prior year

which benefited from a strong positive

working capital movement.

 GLS Accelerate free cash flow included

€190 million of capex and a step-up in tax

payments as assessments from the prior

year came through.

Link to strategy Link to strategy Link to strategy Link to strategy Link to strategy Link to strategy

1. Reported result prepared in accordance with IFRS.

2. APM. APMs are not defined under IFRS. The APMs used to

describe the Group’s performance, including a reconciliation

to reported results, are explained on pages 228 to 232.

3. Refers to direct employees only.

4. GLS Accelerate free cash flow is calculated as pre-IFRS 16

in-year trading cash flow plus disposal proceeds.

€213 million includes four months of Rosenau Transport.

5. Five year target set in 2020-21.

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

25

Our purpose – connecting customers, companies and countries – demonstrates the

importance we place on our stakeholder relationships and our impact on wider society.

Our stakeholders are integral to the Group’s success and if we are to create sustainable

long-term value, we must take account of their issues and concerns.

Colleagues

Our workforce who underpin the delivery

ofourstrategy.

Customers

People who rely on and buy the

servicewe provide.

Shareholders

Shareholders, including our employees,

who provide capital to run our business.

Unions

Organisations that

represent the interests

ofour workforce.

Regulator

Ofcom, the body that oversees our

provision of the Universal Service.

Governments

Administrations that levy taxes and determine

legislation that affects our business.

Suppliers

Our commercial partners who

supportour business.

Local communities

The people who our

activities may impact.

Their key issues Their key issues

Health, safety and wellbeing.

Fair, diverse and inclusive working environment.

Attractive pay and rewards.

Development opportunities.

High-quality, value-for-money,

convenient and sustainable service.

Long-term sustainable value.

Strategy and execution.

Strong ESG performance.

Protection of

workers’interests.

Effective delivery of our Universal

Service Provider obligations.

Delivery of annual Quality of

Servicetargets.

Effective delivery of our Universal Service

Provider obligations.

Provision of employment.

Tax income.

Transitioning to a low-carbon future.

Fair commercial terms.

On-time payment.

Long-term relationships.

Positive social and

economic impact.

Sustainable business

operations.

How we engage across the Group How we engage across the Group

Two-way dialogue including weekly Q&A

sessions with the CEO Royal Mail, or members

of the Royal Mail Executive Board, and through

the Workplace platform, which was introduced

in 2021 to enhance the effectiveness of

employee engagement.

Listen and act on employee feedback through

the annual Big Trust survey, regular pulse

surveys, Employee Voice Forums and

PeoplePanels.

Face-to-face programmes to enhance

colleagues’ understanding of our strategy.

Sharing of information through internal

communication channels including Courier

magazine, Royal Mail TV and Workplace.

Direct customer engagement.

Regular customer surveys.

Net promoter score monitoring.

Trustpilot reviews.

Complaint management and resolution.

Active investor relations (IR)

programme,including investor

meetings,multi-day roadshows and

participation in industry conferences.

Quarterly results announcements.

Regular meetings with

union representatives.

Elected union

representatives work with

Royal Mail management.

Engagement with GLS’

local works councils.

Royal Mail executive team meets

regularly withOfcom.

Dedicated regulation team engages

withOfcom and participates in

regularmeetings.

Key partner for the Government’s COVID-19

testing programme.

Royal Mail executive team meets with key

politicians andcivil servants, including the

Postal Affairs Minister.

Public affairs engagement programme.

Regular updates and briefings.

Regular commercial dialogue. Execute UK community

investment strategy.

GLS supports numerous

regional and national

charitable initiatives.

See pages 42 and 43.

How we engage at Board level How we engage at Board level

Designated Non-Executive Director workforce

engagement programme and regular Board

updates about the programme.

Regular ESG Committee Board updates.

Attendance at Employee Voice Forums.

Review of employee feedback and Board

discussion in relation to actions to address

anyissues arising.

Site visits.

Regular Board updates on quality

ofservice.

Chair and Executive Directors

participation in shareholder meetings.

Annual General Meeting (AGM).

Remuneration Committee Chair engages

with shareholders on remuneration

matters as required.

Participation in IR programme.

Regular Board updates on investor

landscape from corporate brokers

andIR Director.

CEO Royal Mail and Group

CFO meet regularly with

senior union leaders.

Group CFO updates Board

onOfcomengagement.

Dedicated Ofcom team also

provideregular Board updates.

Regular Board updates on matters of relevance

including updates on relevant legislation.

As appropriate, members of Public Affairs

teamattend Board meetings and participate

indiscussions.

ESG Committee receives updates on

ESG-related consultations and policies.

Contracts considered critical in terms

ofrisk profile approved by Board prior

toaward.

ARC considers reports on payment

practices for relevant businesses.

Site visits.

Regular ESG Committee

updates to Board.

Outcomes (see pages 28 and 29) Outcomes

 Improving trust scores. See page 38.  New and enhanced products and

services that meet customers’ needs.

See pages 15 to 17.

 Actions to address quality issues.

Seepage 16.

 Capital return which takes account

ofshareholder feedback gathered

during the investor perception study

undertaken by Rothschild & Co

Investor Advisory in April 2021 (the

2021 investor perception study).

 Recognising the growing importance

of ESG to investors, development of

Group-wide ESG framework.

 Pathway to Change

agreement. See

page19.

 Continuing to make

progress towards the

implementation of the

Royal Mail Collective

Pension Plan, following

a successful union and

employee consultation.

 Contribute to relevant consultations

and the development of regulations

that meet stakeholders’ needs.

 Annual regulatory Quality of

Servicetargets. See page 16.

 £11.8 billion of gross value added by

RoyalMail (direct and indirect contribution)

1

.

 Delivered and collected COVID-19 test

kitsand delivered vaccination letters to

households across the UK.

 Ensured the effective movement of

cross-border parcels post-Brexit.

 Pensions Schemes Act passed, which

willenable our Collective Defined

Contribution Pension Scheme.

 73,000 jobs indirectly supported

byRoyal Mail in the wider economy

1

.

 Promote responsible business

practices through supply chain

compliance. See page 45.

 Publish information on payment

practices in line with the Duty to

Report on Payment Practices

andPerformance.

 Provide 1 in 175 jobs

provided by Royal Mail

in the UK

1

.

 £5.6 million community

investment in 2021-22.

See pages 42and 43.

Principal risks (see pages 56 to 61) Principal risks (see pages 56 to 61)

5

6

11 3

4

7

8 1

2

3

4

5

6

7

8

9

10

11

1

5

6

11 1

5

7

9

10 2

3

5

7

8

10 2

3

4

10 5

7

8

10

Strategic Report

Royal Mail plc

Annual Report and Financial Statements 2021-22

26

Our Stakeholders

1. Cebr research, conducted for Royal Mail in May 2022, comprising direct and indirect contributions.

Colleagues

Our workforce who underpin the delivery

ofourstrategy.

Customers

People who rely on and buy the

servicewe provide.

Shareholders

Shareholders, including our employees,

who provide capital to run our business.

Unions

Organisations that

represent the interests

ofour workforce.

Regulator

Ofcom, the body that oversees our

provision of the Universal Service.

Governments

Administrations that levy taxes and determine

legislation that affects our business.

Suppliers

Our commercial partners who

supportour business.

Local communities

The people who our

activities may impact.

Their key issues Their key issues

Health, safety and wellbeing.

Fair, diverse and inclusive working environment.

Attractive pay and rewards.

Development opportunities.

High-quality, value-for-money,

convenient and sustainable service.

Long-term sustainable value.

Strategy and execution.

Strong ESG performance.

Protection of

workers’interests.

Effective delivery of our Universal

Service Provider obligations.

Delivery of annual Quality of

Servicetargets.

Effective delivery of our Universal Service

Provider obligations.

Provision of employment.

Tax income.

Transitioning to a low-carbon future.

Fair commercial terms.

On-time payment.

Long-term relationships.

Positive social and

economic impact.

Sustainable business

operations.

How we engage across the Group How we engage across the Group

Two-way dialogue including weekly Q&A

sessions with the CEO Royal Mail, or members

of the Royal Mail Executive Board, and through

the Workplace platform, which was introduced

in 2021 to enhance the effectiveness of

employee engagement.

Listen and act on employee feedback through

the annual Big Trust survey, regular pulse

surveys, Employee Voice Forums and

PeoplePanels.

Face-to-face programmes to enhance

colleagues’ understanding of our strategy.

Sharing of information through internal

communication channels including Courier

magazine, Royal Mail TV and Workplace.

Direct customer engagement.

Regular customer surveys.

Net promoter score monitoring.

Trustpilot reviews.

Complaint management and resolution.

Active investor relations (IR)

programme,including investor

meetings,multi-day roadshows and

participation in industry conferences.

Quarterly results announcements.

Regular meetings with

union representatives.

Elected union

representatives work with

Royal Mail management.

Engagement with GLS’

local works councils.

Royal Mail executive team meets

regularly withOfcom.

Dedicated regulation team engages

withOfcom and participates in

regularmeetings.

Key partner for the Government’s COVID-19

testing programme.

Royal Mail executive team meets with key

politicians andcivil servants, including the

Postal Affairs Minister.

Public affairs engagement programme.

Regular updates and briefings.

Regular commercial dialogue. Execute UK community

investment strategy.

GLS supports numerous

regional and national

charitable initiatives.

See pages 42 and 43.

How we engage at Board level How we engage at Board level

Designated Non-Executive Director workforce

engagement programme and regular Board

updates about the programme.

Regular ESG Committee Board updates.

Attendance at Employee Voice Forums.

Review of employee feedback and Board

discussion in relation to actions to address

anyissues arising.

Site visits.

Regular Board updates on quality

ofservice.

Chair and Executive Directors

participation in shareholder meetings.

Annual General Meeting (AGM).

Remuneration Committee Chair engages

with shareholders on remuneration

matters as required.

Participation in IR programme.

Regular Board updates on investor

landscape from corporate brokers

andIR Director.

CEO Royal Mail and Group

CFO meet regularly with

senior union leaders.

Group CFO updates Board

onOfcomengagement.

Dedicated Ofcom team also

provideregular Board updates.

Regular Board updates on matters of relevance

including updates on relevant legislation.

As appropriate, members of Public Affairs

teamattend Board meetings and participate

indiscussions.

ESG Committee receives updates on

ESG-related consultations and policies.

Contracts considered critical in terms

ofrisk profile approved by Board prior

toaward.

ARC considers reports on payment

practices for relevant businesses.

Site visits.

Regular ESG Committee

updates to Board.

Outcomes (see pages 28 and 29) Outcomes

 Improving trust scores. See page 38.  New and enhanced products and

services that meet customers’ needs.

See pages 15 to 17.

 Actions to address quality issues.

Seepage 16.

 Capital return which takes account

ofshareholder feedback gathered

during the investor perception study

undertaken by Rothschild & Co

Investor Advisory in April 2021 (the

2021 investor perception study).

 Recognising the growing importance

of ESG to investors, development of

Group-wide ESG framework.

 Pathway to Change

agreement. See

page19.

 Continuing to make

progress towards the

implementation of the

Royal Mail Collective

Pension Plan, following

a successful union and

employee consultation.

 Contribute to relevant consultations

and the development of regulations

that meet stakeholders’ needs.

 Annual regulatory Quality of

Servicetargets. See page 16.

 £11.8 billion of gross value added by

RoyalMail (direct and indirect contribution)

1

.

 Delivered and collected COVID-19 test

kitsand delivered vaccination letters to

households across the UK.

 Ensured the effective movement of

cross-border parcels post-Brexit.

 Pensions Schemes Act passed, which

willenable our Collective Defined

Contribution Pension Scheme.

 73,000 jobs indirectly supported

byRoyal Mail in the wider economy

1

.

 Promote responsible business

practices through supply chain

compliance. See page 45.

 Publish information on payment

practices in line with the Duty to

Report on Payment Practices

andPerformance.

 Provide 1 in 175 jobs

provided by Royal Mail

in the UK

1

.

 £5.6 million community

investment in 2021-22.

See pages 42and 43.

Principal risks (see pages 56 to 61) Principal risks (see pages 56 to 61)

5

6

11 3

4

7

8 1

2

3

4

5

6

7

8

9

10

11

1

5

6

11 1

5

7

9

10 2

3

5

7

8

10 2

3

4

10 5

7

8

10

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

27

Our stakeholders are integral to the Group’s success. Our engagement with our

stakeholders helps us understand what matters to them. It builds trust, fosters stronger

relationships and ensures that we provide the products and services customers need,

which helps drive the Group’s long-term success.

The outcomes of decisions are not always positive for all stakeholders.

On occasions the Board has to make difficult choices and prioritise

the interests of different stakeholders. In such circumstances, what

matters to each stakeholder is carefully considered and, after

taking account of all relevant factors, a decision is made based

onthe long-term interests of the Group.

In relation to the decisions taken during the year ended 27 March

2022, and up until 18 May 2022, the Board of Directors of Royal Mail

plc consider, both individually and together, that they have acted in

the way they consider, in good faith, would be most likely to promote

the success of the Company for the benefit of its members as a

whole, having regard to the stakeholders and matters set out in

section 172 of the Companies Act 2006.

Examples of principal decisions made by the Board during the year,

and the stakeholder issues and section 172 matters considered as

part of the decision-making process, are set out on this page and

on the following page. We define ‘principal decisions’ as decisions

which are material or strategic to the Group, and/or significant to

any of our stakeholders. In each case, given the materiality and

importance of these matters, the relevant management team

maderecommendations to the Board and, where relevant, its

Committees for consideration.

Group ESG Principles

In November 2021, the Board approved new Group ESG

Principles, having considered the following matters:

 The Group’s purpose and its important societal role in

creating economic and social value for its employees

and customers and the communities where it operates.

 Updates from the ESG Committee in relation to the

Principles confirming that they are built around the

issues that are most relevant to the Group’s

stakeholders andits businesses.

 Growing customer demand for sustainable products and

services provided by trusted and responsible businesses.

 Maintaining trust is fundamental to the Group’s

reputation and long-term success and operating

responsibly is in the interests of all stakeholders.

 The need to clearly articulate the Group’s ESG approach,

particularly in light of the 2021 investor perception study

that indicated that ESG factors are becoming

increasingly important in shareholders’ investment

decision-making process.

Rosenau Transport acquisition

In October 2021, we announced that GLS had agreed to buy

Rosenau Transport, one of the largest independent freight

carriers in Western Canada. Following regulatory approval,

the acquisition completed in December 2021. As part of

theacquisition approval process, the Board considered

thetransaction and decided that the acquisition was in the

bestlong-term interests of the Group and its stakeholders.

In reaching this decision, the Board considered the

followingmatters:

 The combination creates a network which will

enableGLS to cover the vast majority of the

Canadianpopulation and also provides a link to

GLSoperations along the US West Coast. This

strengthened international network complements

GLS’Accelerate strategy and its position as a

cross-border player.

 The significant opportunity to create long-term

valuethrough integration, harnessing new sales

opportunities created by the enlarged footprint

andinsourcing existing GLS deliveries.

 GLS’ and Rosenau Transport’s close strategic and

cultural fit, including a strong focus on quality,

reliabilityand customer service.

 Rosenau Transport’s commitment to its local

communities anditsestablished environmental strategy.

 The impact of funding the acquisition on Royal Mail’s

pension schemes and the schemes’ obligations to

existing and former employees.

Strategic Report

Royal Mail plc

Annual Report and Financial Statements 2021-22

28

Section 172 Statement

Operational management

reorganisation

In January 2022, the Board approved an operational

management reorganisation, subject to formal

consultation.In coming to its decision, the Board

consideredthe following matters:

 The reorganisation aims to further streamline operations

and improve local-level performance. It supports the

Royal Mail transformation programme which is focused

on creating long-term value for all stakeholders.

 The impact of the reorganisation on employees and, in

particular, the likely resulting job losses were carefully

considered. It was decided that in the longer-term

interests of the Group, the reorganisation should be

approved, however all steps should be taken to ensure that

the process was conducted sensitively, working closely

with impacted employees and their representatives.

 The need to enhance customer service levels and how

implementation of the reorganisation is projected to

improve operational performance.

 The cost of implementing the reorganisation and the

resulting impact on shareholder value. The charge of

around £70 million to be taken in the final quarter of

2021-22, was considered and balanced against the

annualised cost savings of around £40 million the

reorganisation is forecast to deliver.

Key

Likely consequences

ofanydecision in the

longterm.

The interests

of employees.

The need to foster

businessrelationships

withsuppliers,

customersandothers.

The impact of operations

onthe community and

theenvironment.

The desirability of

maintaining areputation

for high standards

ofbusiness conduct.

The need to act fairly

asbetween members.

Share buy-back programme

andspecial dividend

The Group’s plan to return £400 million of capital to

shareholders was announced on 18 November 2021. In

deciding to reduce the Group’s cash holding via a share

buyback and special dividend, the Board considered the

following matters:

 Shareholder feedback gathered during the 2021 investor

perception study.

 Alignment of the proposal with the Group’s capital

allocation policy.

 The need to create sustainable value over the medium to

long term and the impact of the cash return on Royal Mail

and GLS’ growth strategies. Given the significant cash flow

generation potential of each business, both are considered

capable of investing in and supporting their own organic

growth and innovation initiatives without constraint.

 The impact on shareholders and, in particular, the

security of the ordinary dividend.

 As part of the decision-making process about the

mechanism of the return, the Board took account of

theGroup’s large retail shareholder base that includes

many of the Group’s employees. It was decided that a

special dividend of £199 million should be paid

alongsidethe interim dividendof 6.7 pence per share

on12 January 2022.

 The long-term consequences of the return including

theeconomic, commercial and industrial relations

environment over the next two years.

 The impact on Royal Mail’s pension schemes and the

schemes’ obligations to existing and former employees.

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

29

We seek to be an integral, trusted and valued part of every community, operating

inaresponsible and sustainable way. Demonstrating leadership across the broad

ESGagenda is also essential to achieving a competitive advantage, creating value

anddelivering on our strategy.

Our ESG approach

We recognise the impact that our operations have on society and

the continuing growth in demand for sustainable products and

services. We have, in response to this, developed new Group ESG

Principles that are built around the issues that aremost relevant

toour stakeholders and our businesses. These Principles, which

are set out on the adjacent page, encapsulate our commitment to

operate in a sustainable way and support several United Nations

Sustainable Development Goals (SDGs). More detailed information

about Royal Mail’s approach to ESG isincluded in the Royal Mail

ESG Report, which is available at www.royalmailgroup.com/en/

responsibility/policies-and-reports. Information about GLS’ ESG

programme is available at www.gls-group.eu/GROUP/en/our-

responsibility.

To ensure that our ESG programmes are relevant to our

stakeholders, we take account of the priorities and areas they

consider most important via regular materiality assessments. The

materiality assessment and process we undertook during the year

is described in the Royal Mail ESG Report, which is available at

www.royalmailgroup.com/en/responsibility/policies-and-reports.

GLS is currently undertaking a full materiality assessment process

involving its own stakeholders.

Information about this assessment will be included in the GLS

ESGReport 2022 which will be published later this year. Our ESG

Principles will be regularly reviewed to ensure that they continue

toalign to the key ESG issues that are most material to the Group

andits stakeholders.

We deliver our commitment to sustainability by implementing

keypolicies and processes and executing Royal Mail and

GLS’ESGstrategies. Reflecting its long heritage, its significant

societal role and predominantly UK focus, Royal Mail’s ESG

programme iswell developed and is focused on delivering

trustatthe doorstep,delivering on environmental and social

commitments, andensuring we foster a culture where an

engaged,healthy anddiverse workforce can thrive.

Our GLS business operates across a diverse geographic footprint,

ina multitude of legal and cultural settings, and with a variety

ofdifferent business models. GLS is in the process of developing

acompany-wide ESG programme, while allowing countries

totailortheiractivities to local needs and expectations. GLS’

corporate ESGactivity focuses on areas where there are shared

requirements, such as health and safety, compliance, and

environmental commitments.

Strategic Report

Royal Mail plc

Annual Report and Financial Statements 2021-22

30

ESG Review

Our ESG Principles

We aim to operate in an

environmentally responsible way,

focused on reducing the impacts

associated with our operations,

andplaying our part in the

transitiontoa low-carbon future.

Our ESG Principles are the foundation of our

wider business strategy to create stakeholder

value and achieve sustainable growth.

Theyfocuson the topics identified by

ourstakeholders as being material while

supporting a number of the UN SDGs.

Sustainable Development Goals

See pages 32 to 35 See pages 36 to 43 See pages 44 to 45

Sustainable Development Goals Sustainable Development Goals

Environment Social Governance

We aim to deliver economic and social

benefits for our people,ourcustomers

and thecommunitieswe serve. As the

UK’s Universal Service Provider, we

are in a unique position to play an

active part in the UK economy.

We endeavour to act with integrity

andtransparency in the interest of

ourstakeholders, ensuring we have

effective mechanisms in place to

deliverour business operations in a

responsible manner. Our stakeholders

trust us to deliver for them. Maintaining

that trust, and operating with integrity,

are fundamental to protecting our

valued place in society.

Net zero

Safety Integrity

Circular economy

Culture

Ethics Social contribution

Transparency

Collaboration

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

31

Environment

Supporting the transition to a low-carbon future

During the year the environmental strategies of Royal Mail and GLS were comprehensively

reviewed and updated. Both strategies now include pathways, targets and mitigating

actions that will help us reduce our environmental footprint andachieve our ambition

tobecome a low-carbon business, while offering a wide range of green solutions to

ourcustomers.

Decarbonising our business

We recognise the need to take decisive steps to help tackle the

global climate emergency and prepare our business for a low-

carbon future. We are aim to take a leadership role in our industry’s

transition and to support the implementation of the Paris Agreement.

In this context, Royal Mail and GLS have set new decarbonisation

ambitions that focus on increasing the use of low- and zero-

emission transport, decarbonising our operations and reducing the

energy usage at our buildings. Our revised ambitions emphasise

the need tolook beyond our own operations and engage our

stakeholders including our customers and suppliers.

Royal Mail

Building on its position as the UK’s greenest delivery option for

letters and parcels

1

, Royal Mail is launching a new ‘Steps to Zero’

environment strategy that brings forward its net zero ambition

to2040. This ambition, which is aligned with the latest climate

science and a 1.5°C decarbonisation pathway, will be achieved by

reducing the business’ scope 1, 2 and 3 emissions.

Aspart of this strategy, Royal Mail will leverage the environmental

advantages of its final-mile foot delivery model, accelerate the

paceof its transition to low- and zero-emission transportation,

andreduce emissions from its network and estate. We also aim

totransform our operations and behaviours to embrace circularity

byenabling reuse models and reducing single-use items. Lastly, we

willuse our size, scale and reputation to lead and champion change.

Aside from its Net Zero by 2040 goal, Royal Mail aims to reach

50gCO

2

e per parcel delivered, a reduction of c.75%. Royal Mail’s

average reported CO

2

e per parcel through its domestic network

iscurrently 205g, compared with the reported emissions of its

industry competitors of between c.300-500g per parcel, which

islargely as aresult of its final-mile foot delivery model.

Carbon ambitions and targets

Royal Mail

Net zero by 2040 across scopes 1, 2 and 3 at UK operations

aligned to 1.5°C, the latest climate science

1

and science-

based target standards.

To 2040 our targets are:

GHG emissions 90% reduction in scope 1, 2, and 3 emissions

Renewable electricity 100% by 2022

Delivery vehicles 100% zero emission by 2035

Company cars 100% zero emission by 2030

We will achieve this target by increasing our use of low- and

zero-emission transport alternatives, including rail, while

minimising the use of domestic air freight. We will also

decarbonise our network and buildings.

GLS

Zero emissions from scopes 1, 2 and 3

2

by 2045 across

European operations.

Offsetting 100% European emissions from 2022

Renewable electricity 80% by 2022 (European locations

operatedby GLS)

Fleet 50% zero/low emission by 2030

100% of new vehicles will be low

orzeroemission by 2035

100% by 2045

Company cars 100% zero emission by 2030

1. We report our carbon emissions in line with the Greenhouse Gas (GHG) Protocol

Corporate Standard. The standard classifies a company’s GHG emissions into three

scopes. Scope 1 emissions are direct emissions from sources that are owned or

controlled, including combustion of fuel and operation of facilities. Scope 2 emissions

are indirect emissions from the purchase of electricity, heat, steam and cooling

purchased for own use. Scope 3 emissions are all indirect emissions (not included

inscope 2) that occur in the value chain of the reporting company, including both

upstream and downstream emissions. We use the latest conversion factors from

the UK Government (source: www.gov.uk/government/collections/government-

conversion-factors-for-company-reporting).

2. Pathways will be developed to deliver this reduction, including the setting of

interimtargets. GLS scope 3 emissions currently include the categories parcel

transport (Well-to-Wheel), water, waste, paper, business travel, Well-to-Tank

(WTT)emissions for scopes 1 and 2 WTT emission from fuel consumption of

company carsand shunters, franchises and subcontracted depots.

1. Based on reported CO

2

e per parcel.

Strategic Report

Royal Mail plc

Annual Report and Financial Statements 2021-22

32

ESG Review continued

GLS

As part of its updated Climate Protect environmental strategy

GLShas the ambition to reduce its Scope 1, 2 and 3 emissions

tozero by 2045, as well as a compensation of 100% European

emissions from 2022.

GLS will reduce and avoid emissions by ensuring that new buildings

conform to its requirements for low-emission operations, which

have been trialled at the GLS EuropeanEcoHub in Essen, Germany,

and by working to increase the number of zero- and low-emission

vehicles, by piloting a variety of alternatives including e-vans and

light vehicles such as e-scooters.

While emission reduction and avoidance are key, GLS recognises

that compensation has an important role to play in helping to tackle

climate change. GLS therefore compensates the emissions of all

sold parcels and shipments of the GLS european subsidiaries, as

well as emissions from sites and business travel.

Our environmental performance

In 2021-22, our total UK carbon footprint decreased by 2% compared

with the previous year, due mainly to a reduction in Royal Mail vehicle

fuel use. This reduction is aresult of lower volumes during the peak

period than the previous year and the deployment of almost 1,300

additional electric delivery vans. Normalised per £mrevenue emissions

also remained the same when compared like-for-like. Inthe year, Royal

Mail and GLS also expanded the scope of their emissions reporting.

GLS now calculates parcel transport emissions for all European

subsidiaries, from pick-up to delivery, using methodology and

datacertified according to EN 16258.

Royal Mail has increased its value chain scope 3 emissions

reporting to cover 100% of emissions across all relevant

categories. As a result of this expanded reporting scope, the

calculated total emissions of Royal Mail and Parcelforce have

increased by 626 KtCO

2

e, which accounts for a considerable

portionof the total 1,229.6 KtCO

2

e reported in the year.

Carbon emissions performance CO

2

e (’000 tonnes)

1

FY2021/22 FY2020/21

2

Total Royal Mail GLS

3

Total Royal Mail GLS

3

Scope 1 488.9 468.5

†

20.4 488.6 473.2 15.4

Scope 2 (location-based) 82.0 59.1

†

22.9 86.7 64.1 22.6

Scope 3 702.0 702.0

†5

– 76.0 76.0

Total 1,272.9 1,229.6 43.3 651.3 613.3 38.0

Tonnes CO

2

e per £1m revenue

4

44.9 62.0 10.3 45.5 62.1 9.4

Scope 2 (market-based) 13.0 8.2 4.8 20.9 9.1 11.8

7

Energy Consumption kWh (’000)

6

2,534,134 2,345,913 188,221 2,503,149 2,352,822 150,327

1. We report our carbon emissions to the GHG Protocol Corporate Standard, which classifies a company’s emissions into three ‘scopes’. Scope 1 emissions are direct emissions from sources that

are owned or controlled by Royal Mail, including the combustion of fuel and operation of facilities. Scope 2 emissions are indirect emissions from the purchase of electricity, heat, steam and

cooling for own use. Scope 3 emissions are all other indirect emissions that occur in a company’s value chain and are voluntary to report. Royal Mail reports all its scope 3 emissions including

purchased goods and services, capital goods, fuel and energy related activities, upstream and downstream transportation and distribution, employee commute, business travel, waste disposal,

end-of-life treatment of sold products and investments.

2. 2020-21 data for Royal Mail has been restated following the provision of data which was previously estimated.

3. GLS emission data reflects the calendar year rather than the financial year. GLS does not report scope 3 emissions.

4. The tonnes CO

2

e per £1M revenue ratio comprises scope 1 and scope 2 (location-based) emissions only. This ratio provides an overview of our carbon efficiency as we continue to grow.

5. Royal Mail has increased its scope 3 emissions reporting to cover 100% of GHG emissions across all value chain categories. This has increased scope 3 emissions reported by 626KtCO

2

e from

76.1KtC O

2

e to 702.0KtCO

2

e. This increase is not reflective of operational changes and is entirely down to increase reporting scope.

6. The data for Royal Mail relates to emissions and energy consumed in the United Kingdom and its offshore area.

7. This number was misreported in the 2020-21 Annual Report as 30.8.

† Included within PwC’s limited assurance scope. See page 45 for further details.

Over a billion steps a day

Our posties make a huge contribution to keeping emissions

low, taking over a billion steps a day. By enhancing this

unique ‘on foot’ delivery network and increasing the

electrification of our fleet, we will reduce emissions

generated during our final-mile deliveries, which

currentlyrepresent 13% of Royal Mail’s emission profile.

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

33

Environment

As outlined within our 2020-21 Annual Report, energy efficiency is

aligned with our ambition to decarbonise, focusing on optimisation

and the deployment of more efficient technology. Initiatives to

reduce energy are detailed below.

For information on the metrics and targets associated with the

implementation of Royal Mail and GLS’ environment strategies,

seepage 32.

Buildings

Energy used by buildings accounted for 13% of Royal Mail’s carbon

footprint in 2021-22. Meanwhile, electricity and gas use decreased

2%, making it broadly similar to the prior year’s consumption.

As parcel automation across the business increases and more

electric vehicle charging is introduced, energy management across

Royal Mail’s large property portfolio is an increasing priority area.

Last year, energy optimisation trials and energy audits identified

several opportunities for energy savings across our estate. As a

result, Royal Mail entered into a five-year energy performance

contract which aims to reduce energy consumption by180 GWh

through the optimisation of existing building services, changing

workforce behaviours around energy use and improvements to

energy controls.

In April 2022 Royal Mail switched to a 100% renewable (no nuclear)

tariff with EDF Energy. Furthermore, solar panels are installed at

seven Royal Mail sites and a solar feasibility study undertaken in

2021 identified around 230 additional sites that have the potential

tosupply around 20% of Royal Mail’s current energy use. These

findings will be further investigated in the coming year, including

identifying funding and leaseholder solutions to secure solar

panelinstallations.

GLS total electricity consumption increased by 16.4%. This is

duetoincreasing parcel volumes, as well as consideration of

subcontracted eastern european sites, which were not included

inthe previous year’s eco-footprint. However, efficiency for

heatingincreases, as our emissions per kWh decreased by 11%.

GLS has rolled out a number of carbon reduction and energy efficiency

measures to future-proof its buildings. These include the use of

regenerative heating systems and LED lighting, installation of solar

panels and purchasing green electricity whenever possible. More than

80% of GLS-operated sites in Europe will use renewable electricity

from 2022 on. All new GLS-operated buildings will have the space and

charging infrastructure for electric vehicles. Existing buildings will be

upgraded as far aspossible to reduce their carbon emissions.

Building on the success of the GLS EcoHub in Essen, Germany,

GLS’EcoHub in Jihlava in the Czech Republic has been expanded.

Originally constructed in 2012, including additional insulation and

LED lighting, the Jihlava hub is now equipped with a photovoltaic

system with an installed capacity of 300 kWp. The expandable

battery storage of 200 kWh enables the lighting oftheexterior

areaand the charging of e-vehicles at night atnewly installed

charging stations.

Transport

Royal Mail’s domestic and international transport networks

represent two-thirds of our emission profile. Our carbon reduction

initiatives for transport are critically important if we are to meet

ournet zero ambitions.

In 2021-22, we saw a 1% reduction in emissions relating to a

reduction in fuel usage from vehicle electrification and lower

peakvolumes compared with last year.

Other key developments included:

 We have continued to add more electric vans to our fleet,

andexpect to have around 5,500 in operation by spring 2023,

compared to around 1,600 in operation at year end 2021-22.

 Our first all-electric delivery office, which is in Bristol, has

reported a 37% reduction in maintenance costs and 73%

reduction in fuel costs (diesel versus electric), which is

estimated will reduce fleet emissions by c.29t CO

2

per annum.

Including Bristol, 17 of our new and planned electric delivery

offices will be ‘all-electric’ by August 2022 as diesel vehicles are

removed from service. These 17 sites include Glasgow, Oxford,

Newport, Watford and Stevenage.

Working towards mass deployment of low- or zero-emission HGVsis

an essential part of Royal Mail’s plans to decarbonise itsbusiness.

Rail currently accounts for around 3-4% of Royal Mail’s distribution

network and the business is exploring ways to significantly

increase rail transportation and reduce its use of domestic flights.

The new Daventry-based Midlands Parcel Hub, which is due to open

in June2023, has its ownrail terminal, which will enable increasing

volumes of mail tobetransported efficiently and sustainably.

Compensation of emissions

In 2022, GLS will provide carbon neutral parcel delivery

toall European customers by offsetting emissions via

theclimate protection programme Climate Protect.

One of the projects supported through the programme

isthe protection of 100,000 hectares of rainforest in the

Peruvian Amazon. The area, which is home to some of

therichest biodiversity on the planet, is under threat

fromthe Transamazonica road project and agricultural

deforestation. The project supports the protection of the

area by working with the local population to help manage

the land sustainably. The preservation of the rainforest’s

valuable carbon sink helps to save some 660,000 tonnes

ofcarbon from the atmosphere each year.

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Royal Mail plc

Annual Report and Financial Statements 2021-22

34

ESG Review continued

† Included within PwC’s limited assurance scope. See page 45 for further details.

With 95% of GLS emissions coming from its transport fleet,

reduction of vehicle emissions is a key factor to achieving its

decarbonisation goals. Measures include fleet conversion,

reducingfirst and last miles emissions and converting depots.

Between 2019-21 GLS’ zero- and low-emission fleet has tripled in

size. Trials toadd more e-vans, e-scooters and alternative-fuel

vehicles to thedelivery network are continuing and, to facilitate

alternative delivery options, GLS is targeting to have at least one

depot with aminimum of six e-vans and adequate charging

infrastructure ineach country where it operates.

GLS is also implementing a range of initiatives to reduce final-mile

emissions aligned to local requirements. For example, in Spain we

are using a new app that was launched in December 2021, through

which GLS customers are informed whether their delivery was

made via electric vehicle or e-bikes. Within two weeks of launching

the app, more than 80,000 deliveries were communicated to

consumers as zero final-mile emissions.

Responsible consumption

Royal Mail is committed to reducing waste and driving behaviours

to a circular economy approach and is targeting:

 A 25% reduction in the volume of waste generated by 2030.

 To undertake a complete review of packaging and single-

useresources by 2023.

Throughout the year, Royal Mail has been reviewing the packaging

it provides to its customers. Parcelforce will trial a plastic bag made

from 84% recycled content. The bag canbe fully recycled and will

include guidance to help the recipient. This product significantly

reduces the volume of new plastic required in its manufacture.

In 2021-22, Royal Mail generated 40,046 tonnes of waste

†

, which

isvirtually unchanged from the previous year.

Further information about our Royal Mail business’ waste and

water consumption is included in the Royal Mail ESG Report,

whichis available at www.royalmailgroup.com/en/responsibility/

policies-and-reports.

Providing sustainable solutions

forcustomers and communities

To strengthen our competitive advantage and support our

customers’ ambitions to reduce their own carbon footprint,

Royal Mail aims to reduce the emissions associated with

parcel delivery to 50g CO

2

e per item (a reduction of 75% on

our current emissions per parcel of 205g CO

2

e). Our average

per parcel emissions is currently around half the reported

emissions ofour key competitors.

During the year, the Royal Mail App was enhanced to include

an innovative feature that enables customers to see the

estimated CO

2

e emissions footprint associated with the

delivery of their parcel.

Collaborating with strategic

partnersto unlock innovation

We collaborate and partner with external organisations

thatcan help us to accelerate and deliver on our

sustainability ambitions. In the year Royal Mail joined

theSteering Committee of the UK Electric Fleet Coalition,

agroup of more than 30 leading businesses advocating

aswitch toelectric vehicles. We have also joined the

EVFleet Accelerator group, which aims to use electric

fleetsasa catalyst to help accelerate the transition

toelectric vehicles across the UK.

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

35

Delivering economic and social benefits

We positively impact society by connecting customers, countries and companies,

andaimto beanintegral, valued and trusted part of every community that our service

reaches. Social issues are also important to our stakeholders, including ourapproach

tohealth, safety and wellbeing, engagement, diversity and inclusion.

Creating a safe and healthy

workenvironment

We want to create a safe and healthy working environment

forour people. Our goal is to ensure a workplace where everyone

is free from injuryand enjoys good physical and mental health.

We recognise the impact of the pandemic on our people and have

provided ongoing and evolving support. Throughout 2021-22, we

kept our policies and COVID-19 risk controls under constant review

to ensure that we maintained compliance with government

guidance and minimised the risk to colleagues, particularly

duringthe peak period of December 2021.

Royal Mail

A strong health and safety culture is key to safeguarding our

people. Our Health and Safety policy outlinesour commitment

toour people and is available at www.royalmailgroup.com/en/

responsibility/policies-and-reports. We implement the policy

through our integrated Safety, Health andEnvironment (SHE)

management system. This provides theframework for managing

risk, improving performance andmaintaining a safe, healthy and

environmentally responsibleworkplace.

Empowering our managers to manage their health and safety

risksis also a focus. For example, in the year welaunched a new

managerial upskilling programme within ourdelivery function in

which 155 of our delivery managers participated. The programme

included training on key safety topicssuch as risk management,

culture, inspections and accidentinvestigations.

Social

Strategic Report

Royal Mail plc

Annual Report and Financial Statements 2021-22

36

ESG Review continued

Group health and safety performance

2021-22 2020-21 2019-20

Royal Mail

†

GLS

†

Royal Mail GLS Royal Mail GLS

Fatalities

1

Employees 1 1 2 0 0 –

Third parties

2

2 18 5 24 7 –

LTAFR

(per100,000hoursworked)

3

0.54 2.28 0.39 2.44 0.38 2.46

Sickness absence (%)

4

7.98 4.98 8.48 4.79 5.87 –

1. The total number of fatalities due to accidents that have occurred as a result of Royal Mail or GLS undertakings. In GLS all fatal accidents are traffic accidents.

2. Third parties include contractors, third-party drivers and members of the public.

3. Refers to direct employees only.

4. GLS publicly reported this data for the first time in 2020-21.

† Included within PwC’s limited assurance scope. See page 45 for further details.

Following a successful trial in November 2021, we have invested

ina new off-site risk assessment system that enables hazard

information to be displayed on our posties’ handheld scanners.

Aswe execute our strategy to transform Royal Mail, the

deployment of technology throughout thebusiness will play

anincreasingly important role.

Royal Mail currentlyoperates three core health, safety and

wellbeing programmes:

 ‘Feeling First Class’ encourages greater proactive ownership

around health issues. We now operate on-site flu clinics at

110ofour larger facilities.

 ‘Stamp Out Aches and Pains’ helps our people improve their

awareness of musculoskeletal health.

 ‘Because Healthy Minds Matter’ aims to reduce stigma and

normalise conversations around mental health. In October 2021,

weadded a stress risk assessment tool to our ‘Stress toolkit’

and launched asecond mental health e-learning product to help

managers better support their teams.

At the beginning of 2022, we launched our ‘Let’s Talk Menopause’

programme, which is designed to improve access to support, help

share experiences and normalise menopause conversations.

InMarch 2022 we also signed the Menopause Workplace pledge.

For further information on how we are supporting the pledge,

please seetheRoyal Mail ESG Report, which is available at

www.royalmailgroup.com/en/responsibility/policies-and-reports.

GLS

In March 2021, GLS launched an extensive Occupational Health

andSafety (OHS) Programme with 10 key projects covering

management, operational and office employees, as wellas

transport partners and their drivers. Key to the success ofthe

programme is the need to create widespread awareness around

the importance of health and safety. To this end, GLS launched a

36-month awareness communication plan with the distribution

ofposters and other materials to promote safe behaviours in the

workplace. In addition, training materials werecreated for all GLS

managers, as well as for transport partners and their drivers,the

latter with a specific focus on road safety.

Health and safety performance

We strive to continuously improve our health and safety

performance, and monitor and report our key safety metrics

regularly to the Board and the ESG Committee.

Our safety performance is set out in the table below. In 2021-22,

ourLost Time Accident Frequency Rate (LTAFR) increased by 38.5%

when compared with the previous year. Whilst absence associated

with accidents increased, the number of most severe incidents

decreased by 10% and our total accident frequency rate reduced by

7.2%. GLS’ employee LTAFR for the same period decreased to 2.28

compared with the previous year (2020-21: 2.44).

Royal Mail also monitors and reports its road traffic collisions

frequency rate (RTCFR) as a key safety performance metric. This

year, we reduced our RTCFR by 2.7% compared with 2020-21. In

theyear, we ran 16 comprehensive road safety campaigns for our

drivers and developed the ‘Drive 360’ driver behaviour programme,

which focuses on the use of telemetry and driver coaching to

encourage safer and more fuel-efficient driving styles.

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

37

Social

We regret to report that three people tragically lost their lives

inaccidents involving Royal Mail vehicles over the last year.

Anemployee died in a road traffic collision and two third parties

died in two other incidents. All accidents are thoroughly

investigated to determine root causes and identify the lessons

learnt. All investigations and findings are shared with relevant

Board members.

During the year a GLS employee tragically lost their life as a result

of an accident during a business trip. The total number of fatalities

related to activities of GLS’ partner companies fell from 24 to 18.

When excluding fatalities attributable to external third-party acts

oracts beyond our control, the number fell by more than 50%

compared with the preceding year, with nine fatalities in 2022

(2021: 19 fatalities). All fatal accidents in 2021-22, either related

toactivities of partner companies or GLS itself, were roadside

accidents; as indeed have been all fatal accidents in recent years.

No fatal accidents have occurred on GLS premises.

As part of its OHS Programme (see above), GLS is working with its

partner companies to help prevent roadside accidents. Findings in

relation to accident root causes are also integrated into relevant

training materials.

This year Royal Mail’s level of sickness absence was 8.0%

compared to 8.5%in the prior year. While this slight reduction

wasdue to a lowerlevel of COVID-related absences, very high

absence levels as a result of the pandemic continued through the

year, particularly in January 2022 due to the rise in Omicron cases.

In GLS, the sickness absence level increased from 4.79 to 4.98,

dueto absences related to COVID-19.

Promoting a fair, inclusive and diverse workplace

We want to own ‘Trust at the Doorstep’ by being brilliant for

customers, having trusted relationships everywhere and by

growing our business. Our values – ‘Be Positive, Be Brilliant, Be

Part OfIt’ – represent the way we do things at Royal Mail and help

share our engagement strategy. Culture and engagement are key

focus areas for the Board and are standing items on the agenda

foreach ESG Committee.

The last 12 months has seen us continue to build on our agenda of

Trust. Owning trust at the doorstep is our mission and to achieve

this we must continue to build better relationships with our people.

We want to create an environment where:

 More of our employees feel valued and respected.

 Employees feel listened to and their feedback is actioned.

 There are direct lines of communication between managers

andemployees.

 Processes are simpler and easier.

 People have the tools they need to do their job effectively.

 Employees take responsibility and are accountable for

theirwork.

 Performance management is recognised and embraced

asakeylever for business success.

We measure our progress across these areas primarily through

ourTrust Survey, which focuses on questions which build a picture

of trust and engagement, both locally and at a company level. The

survey is deployed through monthly pulse surveys and our annual

Big Trust survey. In 2022, over 97,000 colleagues took part in the

survey, representing 69% of our workforce.

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%. Key findings from the 2022 Trust Survey were:

 83% of colleagues said they felt safe at work.

 83% of colleagues feel trusted to do their job.

 50% of teams had a trust score of 70 or above.

Too few of our colleagues report that they’ve seen action taken

asaresult of their feedback – acting on feedback is what matters

most and this is a key area of focus for us.

Our trade union partners play an active role in supporting great local

action plans and with their support we have we have developed

additional support and upskilling to ensure conversations happen

locally with greater visibility and involvement in making change

happen. This will be measured through our monthly Trust Check-in

approach that will re-commence in the summer.

Several GLS subsidiaries conduct employee surveys on a

regularbasis. For example, in 2022, GLS Austria participated

intheemployee engagement survey ‘Great Place to Work’, which

provided the positive feedback that GLS Austria is an attractive

employer. Following the survey, numerous workshops were

heldwith managers to discuss the survey results and respective

measures tobe implemented. The survey also provided valuable

feedback onwhere there was potential for improvement. In spring

2021, GLSDenmark used its survey to better understand the impact

ofthe pandemic on work-life balance and job satisfaction. Overall,

it saw high scores in relation to the desire towork andwellbeing.

The survey found that many activities could be maintained and

conducted online via Microsoft Teams rather thanpostponing or

cancelling them.

Rewarding people fairly

We believe Royal Mail provides the best terms and conditions for

workers in our industry in the UK. Fair employment conditions

arethe foundation of how we do business. We offer permanent

employees a competitive salary, paid holiday and a good pension.

In 2021-22, UK postmen and women on average earned 25% more

than the UK National Living Wage (NLW). All temporary workers

receive the NLW, with the majority receiving hourly pay above the

Real Living Wage.

Strategic Report

Royal Mail plc

Annual Report and Financial Statements 2021-22

38

ESG Review continued

Providing development opportunities

We aim to provide the tools, knowledge and resources for

peopletohave fulfilling careers at Royal Mail, and offer learning

anddevelopment opportunities to colleagues at all levels of

ourorganisation. In 2021-22, we invested £6 million in training,

equating to approximately 23,000 training days compared with

19,000 in 2020-21.

Royal Mail is on an ambitious transformation journey and to reflect

this we have rebranded our learning offer as ‘The Academy’. The

Academy will a promote a culture of learning, connection and

possibility, and will underpin our change programme. In particular,

it will develop the next generation of talent who will continue

tore-invent Royal Mail.

In 2021, we launched our new entry level Postal Apprenticeship

scheme. The programme is committed to increasing social mobility

and helping to provide opportunities to those who have been

impacted by the pandemic and the challenging and often difficult

circumstances that resulted. Furtherinformation about this

scheme and our new ‘Driver CareerPath’ programme is included

inthe Royal Mail ESG Report,which is available at

www.royalmailgroup.com/en/responsibility/policies-and-reports.

GLS also provides a range of learning and professional

development opportunities for its employees.

Working with our unions

In the UK we recognise two unions: the CWU and Unite/CMA.

Around 89% of our operational and administrative-grade

employees are members of the CWU and approximately 65% of our

managers are members of Unite/CMA. In the UK around 99% of

employees are covered by our agreements with these two unions.

We work closely with our unions with the aim of maintaining a

productive and positive relationship, and our agreements with them

are designed to support industrial stability. This year, the key focus

of our relationship with our unions has been to ensure colleague

safety while delivering customer services. The pandemic brought

major changes in customer demand, which had a big impact on

every one of our operating sites and required company, colleagues

and unions to respond.

At the same time, we have worked with the unions to secure

thefinancial position of the company and create the foundations

forfuture success. With Unite/CMA we negotiated and agreed the

Unite/ CMA Transformation Agreement which outlined our future

ways of working. We also consulted on a substantial restructure

ofthe management team and achieved a significant reduction

innumbers via voluntary redundancy schemes.

In 2022-23, we will continue negotiations with both Unite/CMA

andthe CWU on a future pay deal.

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

39

Social

Diversity, Equality and Inclusion (DEI)

We strive to create an inclusive, fair, respectful and accessible

working environment and continue to develop and evolve our DEI

strategy to achieve this.

DEI strategy, roadmap and ambitions

During the year, Royal Mail reviewed its approach to DEI. As part of

this review, we ran a series of ‘future focus’ workshops to listen to

the voices of colleagues at all levels. Their feedback and insights

are reflected in our refreshed/enhanced DEI ambition, strategy

androadmap.

Royal Mail’s updated DEI strategy and roadmap directly supports

our business strategy. It aims to ensure that we have a workforce

that reflects the broad diversity of the customers and communities

we serve and that we offer an inclusive, fair and accessible

workplace where everyone can grow, develop and succeed. Key

areas of focus include the recruitment and retention of the best

diverse talent and DEI collaborations that benefit society more

broadly and the communities in which we operate.

The updated strategy includes the following strategic priorities:

 Increase the diversity of leadership and talent across Royal Mail.

 Transform our generational profile.

 Partner with others to lead the way in social mobility.

 Build an environment of inclusion, fairness and accessibility

forall.

 Focus on creating vibrant and inclusive national networks open

to everyone.

Diversity profile

Our Group gender diversity profile is shown in the table below.

In our Royal Mail business, around 11% of our employees are from

an ethic minority background, which is broadly representative of

the UK population. Royal Mail is a signatory to Business in the

Community’s (BITC) Race at Work Charter, and actively participates

in BITC’s internal and external Mentoring Circles programme. This

programme offersour ethnic minority colleagues an opportunity

tobe mentored by senior colleagues within our organisation

andacrossmultiple industries.

Royal Mail also complies with the Parker Review target for all

FTSE100 boards to have at least onedirector from an ethnic

minority background by 2021 (seepage80).

The Board is responsible for defining the direction of our DEI

strategy and monitoring its implementation across our business.

The Royal Mail Executive Board oversees our programmes and

areresponsible for driving culture change across the business.

Group gender diversity profile as at 27 March 2022

Royal Mail GLS Total

Female Male Female Male Female Male

Board

1

4

†

6

†

0 1 4 7

Senior management

2

575

†

1,264

†

39 250 614 1,514

Management 1,430

†

4,877

†

492 1,526 1,922 6,403

Administration 1,543

†

1,002

†

2,741 2,211 4,284 3,213

Operational 24,987

†

104,122

†

3,616 11,449 28,603 115,571

Total

3, 4

28,539 111,271 6,888 15,437 35,427 126,708

1. The Board as at 27 March 2022. Royal Mail Board numbers include both Royal Mail and Royal Mail Group employees. Total includes Board members not classified as employees,

theChairmanandCompany Secretary. The GLS Board member refers to Martin Seidenberg as Group Board member.

2. For our ESG reporting, we define senior managers as persons graded in bands 1-9, being employees responsible for planning, directing or controlling the activities of the Company,

orastrategically significant part of it. It does not include those members of the Royal Mail plc Board who would otherwise classify as employees within bands 1-9. This definition of

seniormanagement is used each year, ensuring alignment with our people management systems and consistent comparison on data year-on-year. GLS refers here to A and B level

employeesand employees, which have a comparable degree of responsibility.

3. In total, 26 employees have no declared gender within the Royal Mail reporting system. These employees would add an additional 25 employees to total operations, and one additional

admin.Thetotal headcount for Royal Mail is therefore 139,836 and overall headcount for the Group is 162,161.

4. Number excludes Pensions Trustees and Intersoft and eCourier.

† Included within PwC’s limited assurance scope. See page 45 for further details.

Royal Mail 2025 diversity targets

To support the implementation of the updated DEI strategy

new diversity targets have been set see table below.

Position at

27March

2022

(%)

Target

position

March 2025

(%)

Female representation (all levels)

1

19%

†

25%

Female representation (levels 1-6) 28% 33%

Ethnic minority (all levels) 11%

†

15%

Ethnic minority representation

(levels 1-6) 6% 11%

Youth representation

(frontlinebelow level 6) 6% 18%

† Included within PwC’s limited assurance scope. See page 45 for further details.

Strategic Report

Royal Mail plc

Annual Report and Financial Statements 2021-22

40

ESG Review continued

National employee networks operate across Royal Mail to galvanise

DEI activities across the business. Our One Royal MailDEI Action

Group, which comprises senior leaders andrepresentatives from

each network, meets quarterly tocoordinate activities across all

networks. Information about ouremployee networks and their

activities during the year is included intheRoyalMail ESG Report,

which is available at www.royalmailgroup.com/en/responsibility/

policies-and-reports.

We remain committed to supporting disabled applicants

andcolleagues at all stages of the employee cycle. We provide

training, career development and promotion opportunities, while

our operations managers complete Disability and Reasonable

Adjustments training to ensure that they are confident and effective

in supporting colleagues with disabilities. We provide support and

training for colleagues with existing disabilities and for those who

have become disabled during their employment. Royal Mail is

proudto be part of the UK’s Disability Confident scheme and

achieve Disability Confident Employer Status.

GLS is currently in the process of developing its own DEI

Programme to support its ambition to provide all employees

withan equal opportunity to succeed. The programme will focus

onpromoting gender equality and ensuring an inclusive and

welcoming working environment where there is equal treatment

and development opportunities for allemployees, including those

with disabilities and caringresponsibilities.

Gender pay gap

We believe all our people should be rewarded fairly for their

work,regardless of gender. We are pleased to report that the

totalaverage pay for male and female employees continues

tobebroadly the same, with the pay gap (on a mean basis)

narrowing from the same period in 2020. Information on our

2021Gender Pay Gap Report is included on page 123 andthefull

report is available at www.royalmailgroup.com/en/responsibility/

our-people/investing-in-our-people/.

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

41

Social

Our social and economic impacts on communities

Supporting our communities

Our social and economic impact

Royal Mail seeks to be an integral, valued and trusted

partofevery community in which we operate.

In 2021-22, Royal Mail contributed £3.5 million to good causes

andcharitable schemes. This included match giving for colleague

fundraising and the cost of our Articles for the Blind service.

Inaddition, our colleagues raised £2.1 million for charity.

Earlier this year, in recognition of the trust that was built in its

response to thechallenge of the pandemic and the steps taken

tokeep itsbusiness safe, Royal Mail won the Resilient Workforce

awardand the Business Continuity award at the CIR Annual

Business Awards.

Community investment

We build on the economic and social impacts of our operations

byinvesting in strategic partnerships and finding ways to use

ourheritage and business assets to contribute to society. Our

community investment strategy is structured into three key areas:

 Leveraging our national scale: In response to reported

increases in domestic abuse during the pandemic, we

launchedOnline Safe Spaces (OSS) with the charity Hestia.

Theservice continues to provide support, advice and contact

numbers for those experiencing, or at risk of, domestic abuse.

Since launch, we estimate 1 million users have accessed the

service. During the year we also supported the launch of

Hestia’s ‘Fresh Start’ initiative to support women andchildren

stayingat London refuges in gaining financial independence

andthe security to flee domestic abuse. Aspartofthis

partnership, Royal Mail offers free ‘in confidence’redirections

totheir new accommodation.

 Using our local presence: As our people are present in every

community across the UK, we are uniquely placed to support

thesearch for missing people. Since 2014, we have posted alerts

from the charity Missing People to our postmen and women

viatheir handheld scanners. This year we supported Missing

People’s Home for Christmas Campaign, which included a

12-hour social media takeover to raise awareness around

theissue of missing people.

7th

largest contribution of any UK

company to the UK economy

1

1 in 175

people employed in the UK

byRoyalMail

1

£11.8bn

of gross value added by Royal Mail

(directand indirect contributions)

1

1. Cebr research, conducted by Royal Mail in May 2022, comprising direct and indirect contributions.

£3.2bn

contributed through procurement

ofgoods and services

1

73,000

jobs indirectly supported by

RoyalMailinthe wider economy

1

£3.5m

contributed to good causes

andcharitable schemes

Celebrating the heroes

ofthepandemic

To celebrate the ‘heroes of the pandemic’, Royal Mail

launched a competition for children across the UKtodesign

a stamp. The competition received 606,049 entries and

secured a Guinness World Records title for the largest

postage stamp design competition. Designs covereda wide

range of heroes, including NHS workers, parents, carers,

refuse collectors, supermarket workers, public transport

staff, and postmen and postwomen. The final eight winning

designs, which were selected by His Royal Highness

ThePrince of Wales, appeared on a new setof stamps

thatwere issued earlier this year.

Strategic Report

Royal Mail plc

Annual Report and Financial Statements 2021-22

42

ESG Review continued

 Unlocking potential through education: Royal Mail

supportsWorld Book Day and the National Literacy Trust’s

Vision for Literacy pledge, which aims to close the national

literacy gap and boost social mobility. A key activity in this

programme was to workingclosely withThe Postal Museum

andPuffin Books torollout The Postal Museum’s Jolly Postman

virtual learning sessions to schoolsacross the country for free.

The pandemic has intensified existing social and economic

challenges and created many new ones. We have played an

important role in the recovery of local communities and economies,

particularly by supporting the health of those affected by the virus.

Further information about our work in relation to the delivery and

collection of test kits, and the delivery of vaccination appointment

letters and prescriptions is included on page 7.

Royal Mail has supported the Disasters Emergency Committee

(DEC) with a dedicated PO Box for over 30 years, providing the

UKpublic with a way to respond to national appeals for overseas

disasters. In addition to the ongoing Coronavirus and Afghanistan

Crisis appeals, we launched our support for the DEC’s Ukraine

Crisis Appeal. As of March 2022, £374 million has been donated to

the three DEC appeals with an approximate average of 6% of UK

public donations made via the Royal Mail PO Box.

In response to the war in Ukraine, both Royal Mail and GLS have

introduced specific programmes and fundraising measures.

RoyalMail launched an internal fundraiser for the British Red

Cross,matching all employee donations. To further enhance our

support, Royal Mail has been working closely with the Ukrainian

Embassy in relation to the provision of logistics support. We have

supported vehicles travelling to Poland as part of the Ukrainian

Embassy’s aid effort and this activity is continuing. Across GLS,

anumber of countries including, GLS Germany, Finland and Italy,

havedonated tothe Red Cross to purchase the goods needed.

GLSSlovenia, Germany and Romania have also provided transit

ofgoods to theborder.

GLS community support

GLS supports numerous charitable projects byorganising both

regional and nationwide initiatives. These include free parcel

shipping for aid organisations and the sponsorship of foundations

for people with developmental or physical disabilities. In addition,

the business makes financial contributions to support numerous

local charitable projects including kindergartens and hospitals.

Following a volcanic eruption in La Palma, GLS Spain supported

several NGOs, city councils, and other associations in transporting

key items such as clothes, blankets and toys to the affected people

in La Palma. In addition, in collaboration with a school in Northern

Spain, children sent books to create a library for the LaPalma

pupils whose school was swept away by the lava flow.

Protecting our customers

As the Universal Service Provider and a responsible business,

wehave an obligation to support our customers and ensure that

our products and services are available and accessible to all.

During theyear we introduced several new initiatives and cost

changes, including a reduction in the cost of our redirection service

for customers on Universal Credit. More information can be found

inthe Royal Mail ESG Report at www.royalmailgroup.com/en/

responsibility/policies-and-reports.

Protecting human rights

We are committed to playing our part to uphold and protect

humanrights in our businesses and across our supply chain

globally. We obey the laws, rules and regulations of every

countryin which we operate and implement the UN Guiding

Principles onBusiness and Human Rights, the UN Declaration

ofHuman Rightsand the International Labour Organization

Fundamental Conventions within our businesses and our

supplychain. These cover freedom of association, the abolition

offorced labour, equality and the elimination of child labour.

During the year, Royal Mail worked in conjunction with the UK

charity Unseen, which is working to stamp out modern slavery,

tolaunch a series of awareness materials and training

programmes. For the first time, a bespoke postmark was applied

toall UK stamped mail to support and raise awareness of Anti-

Slavery Day. In addition, updated modern slavery content has been

incorporated in Royal Mail’s induction and compliance training,

which is mandatory for all managers. GLS provides online supply

chain compliance training, which also covers modern slavery.

Thistraining is mandatory for all personnel with purchasing

authority ordepot supervisory function. In addition, modern

slavery issuesare highlighted during face-to-face training with

relevantGLS managers.

We will continue to focus on assessing supply chain risks

inrelationto modern slavery and human trafficking, and are

exploringoptions for certification of third-party suppliers

forcorrect employment standards and signposting them

tomodernday slavery trainingmaterials.

Our Modern Slavery Act Statement is available at

www.royalmailgroup.com.

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

43

Governance

Operating responsibly

Our stakeholders trust us to deliver for them. Maintaining this

trustby operating with integrity is essential if we are to succeed

andgenerate long-term value.

Management and oversight of

ourESG-related activities

We implement Group-wide policies and frameworks and

businessspecific strategies, policies and processes that are

tailored to the needs of our Royal Mail and GLS businesses and

their respective stakeholders. Information about key policies,

including the Group’s ESG Policy Statement, is set out on the

nextpageand theirimplementation is described throughout this

ESG Review. The Group’s ESG Policy Statementisavailable at

www.royalmailgroup.com/en/responsibility/policies-and-reports.

The ESG Committee provides Board level oversight of the

implementation of our ESG Principles (see page 31) across

theGroup. Information about the ESG Committee’s activities

during2021-22 is included on pages 107 to 109.

The Royal Mail and GLS Executive Boards, supported by dedicated

ESG functions, are responsible for ensuring effective execution

oftheir respective ESG strategy and alignment of targets,

policiesand procedures with the Group’s ESG Principles

andESGPolicy Statement.

We assess the risks and opportunities arising from social and

environmental issues relevant to the Group at least once a year

anduse our risk management framework to determine their

criticality. Information about our approach to risk management

isincluded onpages 52 to 55. As part of the Group’s remuneration

arrangements, relevant ESG performance metricsare reviewed

and incorporated into the Group’s incentiveplans. Further

information is available on pages 112 to 116 and page 136.

Our ethical standards

We aim to foster a culture based on honesty, integrity, openness

and effective debate. The overarching business policies that set

outour approach to responsible business conduct, which includes

our supply chain, are outlined on the next page.

Royal Mail employees have access to our policies and guidance via

the intranet or our communications channel, MyRoyalMail. Royal

Mail operates a comprehensive ethics and compliance training

programme. All employees are required to undertake training

relevant to their role and our managers are required to complete

compliance refresher training annually which includes an

attestation of our Business Standards. The completion rate for this

annual training for FY2021-2022 was 99.8%. During the year, Royal

Mail provided additional training for colleagues with procurement

or supply chain management responsibilities, which covered

modern slavery, anti-bribery, and the identification and mitigation

Our performance

The Group is independently rated as a leading

responsible business by numerous international

benchmarks for sustainability, including:

Included in both Worldand Europe Indices

for the transportation industry.

Ranked in the 89th percentile of companies.

Constituent of both FTSE4Good UK and Europe.

Rated as AA.

Scored B rating, ahead of industry

averageof C.

Strategic Report

Royal Mail plc

Annual Report and Financial Statements 2021-22

44

ESG Review continued

of tax risks relating to suppliers. All colleagues are required to

complete annual mandatory compliance refresher training, which

includes an attestation of our business standards. Colleagues,

contractors, agency and casual workers, suppliers and business

partners are encouraged to report any suspected policy breaches

through our confidential Speak Up process.

GLS employees with computer access are assigned relevant policies

and guidance through an online system. Employees without computer

access can access print versions of the policies in the depot locations.

GLS’ compliance training approach consists of online training for

allwhite-collar employees, including employees with purchasing

ordepot supervisory functions. These comprise modern slavery

awareness training and appropriate levels of anti-corruption training.

GLS operates a dedicated Whistleblowing Helpline that is

availablefor reporting and investigating allegations of criminal

actsor similar serious offences. GLS encourages employees,

business partners and third parties to report, in confidence,

anyconcerns they have.

Royal Mail has set a target to have 50 of its high-risk suppliers

andsubcontractors reporting self-assessments or third-party

sustainability audits via Sedex by end of 2022-23. Currently, 40

suppliers areactive on the system and Royal Mail is working with

Sedex toexpand coverage, including launching an on-boarding

support programme to identify and sign-up more suppliers.

Policy Scope

Group ESG Policy

Statement

Sets out our ESG strategy, governance and commitments, including our support for the United

Nations (UN) Global Compact and Universal Declaration of Human Rights.

Royal Mail Business

Standards

Outlines the behaviours Royal Mail expects from our employees, and others working on our behalf.

The standards are about doing the right thing, following the law, acting honourably and treating

others with respect. They help our people to do the best job for our customers, keep our people

safeand protect our reputation.

GLS Code of Business

Standards (the GLS Code)

Outlines the values and behaviours GLS expects from its employees and business partners.

Itisavailable in local languages for all GLS employees and business partners in the 20 countries

where GLS has wholly owned subsidiaries.

Royal Mail Policy for the

Prevention of Bribery,

Corruption and the

Facilitation of Tax Evasion

Sets out our approach to minimising the risk of bribery and corruption taking place in any part of our

business. We have a strict zero-tolerance policy towards bribery and corruption, and our anti-bribery

and corruption policies apply to our employees and anyone performing services on our behalf.

GLS Anti-bribery Policy Sets out our approach to minimising the risk of bribery and corruption taking place in any part of our

business. We have a strict zero-tolerance policy towards bribery and corruption. Our Anti-bribery

Policy applies worldwide, wherever GLS employees do business.

Royal Mail Responsible

Procurement Code

(theProcurement Code)

Outlines the environmental, social and ethical commitments and behaviours we expect from our

suppliers and aims to ensure that we only engage suppliers that meet our standards. This code, which

isbased on the UN Global Compact Principles, requires our suppliers to adhere to the UN Declaration

of Human Rights, which is part of our commitment to implementing the UN Guiding Principles on

Business and Human Rights. We require our suppliers to communicate the Procurement Code in

fulltoall relevant employees within their organisations. The Procurement Code is available at

www.royalmailgroup.com/en/responsibility/policies-and-reports.

GLS Supplier

CodeofConduct

Sets out the standards GLS expects of its suppliers and is also based on the UN Global

CompactPrinciples framework. A copy is available at https://gls-group.eu/GROUP/en/about-us/

our-codes-of-conduct.

Our approach to responsible procurement also covers the timely

payment of our suppliers. Our latest Payment Practices report

(which was published in October 2021) showed the percentage of

invoices paid in 61 days or more fell to 2%, compared to the same

period in the prior year when 8% were paid in 61 days or more.

Reporting standards

We are committed to being as open and transparent as possible

about our business. Our ESG reporting meets:

 The disclosure requirement Global Reporting Initiative (GRI)

Standards: Comprehensive option.

 The requirements of the EU’s Non-Financial Reporting Directive.

 Our obligations as a signatory to the United Nations Global Compact.

We engage PricewaterhouseCoopers LLP (PwC) to provide

limitedassurance over certain non-financial performance

indicators and related assertions. Their assurance covers

environmental indicators and metrics used to monitor culture,

suchas health and safety, sickness absence and diversity.

Theassured metrics are included within this report and

aremarked‘†’. Their limited assurance engagement was

performedinaccordance with the ISAE 3000 (Revised)

andISAE3410 standards and further information is available at

www.royalmailgroup.com/en/responsibility/policiesand-reports.

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

45

We recognise climate change as a key global threat, and one thatposes

particular risks and opportunities for our business. Identifying these risks

and opportunities enables us to enhance theresilience of the business and

take advantage of the opportunities it may offer.

We are committed to implementing the recommendations of the

TaskForce on Climate-related Financial Disclosures (TCFD) and have

started working to develop our disclosures and embed processes

across the Group. Our TCFD Statement of Compliance is set out below

and in the adjacent column.

Governance of climate-related risks and opportunities

The Board is responsible for overseeing the management of our

climate-related risks and opportunities. It has delegated specific

responsibilities to its Committees and other relevant functions

across the Group, as summarised on the adjacent page.

Climate-related risk identification and analysis is a process in which

risk profiles are maintained by relevant members of the Royal Mail

and GLS senior management. The Audit and Risk Committee (ARC)

provides oversight of Group principal risks and progress against

mitigation strategies. The ARC is supported by the Royal Mail Risk

Management Committee and GLS Audit and Risk Committee. We

arealso establishing a Group-wide TCFD working group which will

comprise representatives from Investor Relations, Finance, Risk and

ESG functions.

A standard risk scoring methodology, based on probability and

potential impact, is used to rank risks based on their significance

andmateriality. Where climate-related risks and opportunities

areidentified, individual business units are required to factor

theactual and potential impacts into their strategy and financial

planning, and develop mitigation plans as necessary.

For more information on how the Royal Mail and GLS businesses

identify, manage and monitor risks (including climate-related risks)

please see pages 52 to 61.

Recommended disclosures Page numbers

Board’s oversight of climate-related risks and opportunities. 46 and 47

Management’s role in assessing and managing climate-related risks and opportunities. 46 and 47

Climate-related risks and opportunities identified over the short, medium, and long term.

50

Impact of climate-related risks and opportunities on businesses, strategy, and financial planning. 50 and 51

Resilience of strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario. 49

Processes for identifying and assessing climate-related risks. 48

Processes for managing climate-related risks. 50

How processes for identifying, assessing, and managing climate-related risks are integrated into overall risk management. 46 and 47

Metrics used to assess climate-related risks and opportunities in line with its strategy and risk management process. –

Scope 1, Scope 2, and, if appropriate, Scope 3 GHG emissions, and the related risks. 48

Targets used to manage climate-related risks and opportunities and performance against targets. 48

TCFD Statement of Compliance

Set out below are our disclosures in accordance with Listing Rule 9.8.6R(8). We believe the recommendations listed below require further

development to fully meet TCFD guidelines. The page numbers refer to where information can be found on the progress that has been

made to date in each area.

We have further work to do to develop our processes and enhance

our reporting in relation to TCFD. Specific recommendations not

fully implemented are outlined below, together with information

about how we plan to develop these areas in the future based on

timelines that will be determined and approved by the Board.

 Governance and risks: we describe the Board’s oversight of

climate-related matters in so far as they pertain to the broader

ESG landscape and strategy. Processes to ensure Board and

senior management oversight of specific climate-related risks

and opportunities are to be developed, together with

mechanisms to ensure management is informed about these

matters. The maintenance of risk profiles by relevant members

of the Royal Mail and GLS senior management to take account of

climate-related issues will be improved. In addition our future

disclosures will provide more detailed information about how

climate-related risks are managed and integrated into the

Group’s risk management framework.

 Climate risk metrics: we have yet to fully define and implement

the metrics we will use to monitor and manage the identified

climate-related risks.

 Financial impacts: we have not yet fully quantified the financial

impacts that climate-related risks and opportunities could have

on the Group over the short, medium and long term TCFD

horizons. We recognise the need to present a holistic picture of

the climate-related interdependencies that could affect our ability

to create value over time, and how these are integrated into our

financial planning process. In this context, carbon pricing will be

considered as part of our future financial planning.

Strategic Report

Royal Mail plc

Annual Report and Financial Statements 2021-22

46

TCFD Statement

Climate-related governance

Executive management

Board oversight

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

47

Key focus during 2021-22

The Board has continued to increase its focus on climate-

related matters as the ESG landscape evolves. This has

included discussions on increased regulatory requirements,

and changing investor, customer and consumer expectations.

ESG also forms part of wider Board discussions on strategy

and investor relations, and the Board receives ESG

Committee updates from the ESG Committee Chair on any

material issues that are discussed.

Board activities related to climate change included:

 Approved new Group ESG Principles, which include

ourrole in the transition to a low-carbon future.

 Reviewed and approved the environmental and

sustainability principal risk.

 Reviewed and approved updated environment

strategiesfor Royal Mail and GLS.

 Reviewed environmental sustainability metrics and

performance targets.

 Reviewed and approved climate and environmental-

related disclosures of the Annual Report.

 Reviewed quarterly update from the ESG Committee in

relation to progress with development of climate-related

strategy and key activities.

The Board

See pages 84 to 90

Role

Accountable for and oversees management of climate-

related opportunities, risks and performance.

Relevant experience

In early 2021, the Board received training on ESG-related topics.

Also see Board member biographies on pages 82 and 83.

Specific responsibilities are delegated to the Board’s Committees

See pages 99]to 106 See pages 107 to 109] See pages 110 to 141]

We are also establishing a TCFD working group to ensure discussion and interpretation of climate-related risks and

opportunities and, appropriate business planning.

Audit and Risk Committee

Oversees the Group’s risk management

systems and reviews the policies and

processes for identifying and assessing

the risks to which the Group is exposed,

which include environmental and

sustainability principal risk, and the

management of those risks.

ESG Committee

Oversees the Group’s ESG agenda, with

a focus on the Group’s environment

strategies and performance. During

theyear the Committee reviewed the

GLS and Royal Mail strategies, and

recommended their approval to the Board.

Remuneration Committee

Determines how ESG metrics,

includingenvironmental and

climate,will be considered within

theremuneration policy and how

theywill be taken into consideration

indetermining the final incentive

paydecisions.

Executive leadership and their functions oversee day-to-day management

Royal Mail Executive Board

GLS Executive Board

Responsible for day-to-day assessment

and management of climate-related risks

and opportunities, and the delivery of

each business’ environmental strategies.

Royal Mail

Risk Management Committee

Identifies principal risks, including

environmental and sustainability,

andoversees plans to mitigate.

GLS

Audit and Risk Committee

Identifies principal risks, including

environmental and sustainability,

andoversees plans to mitigate.

Climate transition strategies

We are committed to providing sustainable solutions for our

customers and communities and managing the transition to a

low-carbon economy through science-based decarbonisation

strategies. During the year, Royal Mail and GLS set new ambitions

to decarbonise their respective businesses and developed bespoke

environmental strategies. These strategies include increasing the

use of lowandzero-emission transport, reducing emissions across

operations overall, and reducing energy usage at buildings. For

more information about our environmental strategies, please see

pages 32 to 35.

Identification of main climate risks and opportunities

The Group has applied the following three-step approach toidentify

and analyse the impact of climate-related risks in different scenarios

to facilitate medium- to long-termbusiness planning:

1) Based on the defined climate scenarios, hold workshop

discussions with representatives from across the business to

discuss the material climate risks in key areas of our operations,

supply chain and markets.

2) Map the impact pathways of the material climate risks identified.

3) Assess the scale of the climate risks and opportunities

forthebusiness.

Time horizons and climate risk scenarios

We determine our climate risks and opportunities based on

ouroperations, locations and legal obligations. In 2021-22 we

worked with external specialists to better understand the long-

term impacts of climate change on our business. This included

aqualitative climate change risk and opportunity assessment

tounderstand the different climate issues that could impact the

business in the future under different scenarios. These scenarios

derive from the Network for Greening the Financial System

(NGFS),a peer-reviewed and publicly available third-party

source,and are summarised below.

We reviewed material climate risks against the following three

timehorizons in which risks could have an impact:

 Short term: < 2030, with a focus on transition risk and

significant policy frameworks.

 Medium term: between 2030 and 2040, with a focus on

transition risks and policy frameworks aligned to meet climate

goals and some physical impacts.

 Long term: > 2040, largely focused on physical risks to take into

account climate science projections.

In line with TCFD recommendations, we also conducted a review

against the climate risk scenarios detailed in the graphic on the

following page.

Royal Mail

GLS

Target – Net zero by 2040

Scopes 1, 2 and 3 at all UK operations (Royal Mail

andParcelforce), aligned to 1.5°C and the latest

climatescience, and science-based target standards.

Target – by 2045

Ambition to reduce Scope 1, 2 and 3 emissions to zero

by2045across European operations.

Strategic Report

Royal Mail plc

Annual Report and Financial Statements 2021-22

48

TCFD Statement continued

Description of time horizons and climate-risk scenarios

Disorderly (2-3 degrees): sudden disorderly

transition to low-carbon economy.

Climate policies are not introduced until

2030.Emissions reductions are sharper

thanin an orderly scenario to limit warming

to the same target. Physical risks rise and

transition risks are maximised.

A sudden increase in climate-related policy would be introduced

around 2030 following years of largely ineffective policies.

Physical risks are higher within this scenario requiring more

significant planning for business continuity to avoid or mitigate

disruption to operations.

No transition (>4 degrees): failed

transitionto low-carbon economy.

Only current policies implemented, and

national targets are not met. Emissions

continue to grow, leading to severe physical

risks but with limited transition risks.

The business would be required to comply with current

policyonlyfrom a regulatory perspective. However, the

physicalimpactsof climate change would be significant,

causingdisruptionto operations and the value chain. In this

scenario, transition risks should be integrated into our business

continuity and business risk mitigation and adaptation planning.

Orderly (<2 degrees): long-term orderly

transition to low-carbon economy.

Climate policy gradually becomes more

stringent and physical risks are present

butrelatively low, while transition risks

aremoderate to high.

The implementation of policy is slower than in the rapid scenario,

which reduces the impact on the business of any sudden policy

changes. This scenario would need regular reviews of decarbonisation

plans and business strategy to ensure that plans remain aligned

across all areas of operation. In this scenario, physical risks

arepresent, but are considered relatively low, and should be

integrated into business continuity and business risk mitigation

and adaptation planning.

Rapid scenario (1.5 degrees):

rapid transition.

Transition risks are maximised and physical

risks, although present, are relatively low.

Policy frameworks begin to increase and take effect to facilitate

rapid decarbonisation. Key considerations for Royal Mail and

GLSare to ensure that environment and business strategies are

aligned with, or are ahead of the policy requirements. Decarbonisation

plans of both businesses will require regularreview to ensure they

remain at pace with climate science and are aligned torequirements

across all areas of operation. In this scenario, physical risks should

be limited.

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

49

Main climate risks and opportunities

The Group has done an initial assessment of the climate-related

risks and opportunities with the highest potential to impact the

business under the range of time horizons and scenarios outlined

above. It has yet to fully assess what the impact of the risks

identified will be on all areas of the business, such as products,

services, supply chain. To date, we have concluded that:

 The relative materiality of climate-related risks and opportunities

varies across the Group’s business areas.

 Extreme weather events are a material physical risk, based on

internal stakeholder engagement but less material than

transition risks.

 A ban on the sale of petrol and diesel vehicles is the most material

transition risk, based on internal stakeholder engagement.

 In each case, the Group’s products and services will haveto

respond to shifts in customer demand.

Physical risks

These are defined as risks which arise from the physical effects

ofclimate change, such as an increase in extreme weather

events.These are already having an impact on the Group, but

areconsidered to be less materially significant to the Group

thantransition risks. Even so, the physical risks below would

havea negative impact on the Group’s delivery of service.

Transition risks

These are business-related risks that follow societal and economic

shifts toward a low-carbon future. They are considered to be very

material to the Group due to the reliance of its business model on

itsfleet for operations, where the majority of the Group’s CO

2

e

emissions come from. The transition risks detailed in the adjacent

columncould have a negative impact on the Group’s business model.

Transition opportunities in our markets

Climate change offers the Group significant commercial

opportunities. As consumer demand for more ethical business

practices and products continues to grow, the Group can create

more sustainable delivery mechanisms and ‘greener’ products and

services that can help it to expand market share. Furthermore, the

Group can achieve important savings through renewable energy.

Transition opportunities with investors and via partnerships

Climate change offers the Group significant opportunities in

financial markets and by collaborating with key external partners.

As investor expectations continue to shift in favour of businesses

that take decisive action to tackle the threat of climate change, the

Group has the opportunity to differentiate by taking a leadership

role with regard to ESG more broadly. At the same time, the

transition of the Group’s fleet to low- and zero-emission vehicles

such as EVs will offer new opportunities for partnerships with

awide range of companies including competitors and energy

providers to create efficiencies and support the development

ofcharging infrastructure.

Group priority physical risks Business element impacted Risk rating Time horizon

Extreme weather events (e.g. storms, flooding) impacting operations. Operations, Market

High Medium

toLong

Impacts of changing climate on employee wellbeing. Operations

Medium Medium

toLong

Damage to facilities/equipment at sites/data centres reducing connectivity. Operations

Medium Long

Chronic changes in physical environment. Increased frequency of

extreme weather events including chronic sea level rise and changing

weather patterns causing supply chain disruption.

Supply chain, Operations

High Medium

Group priority transition risks Business element impacted Risk rating Time horizon

Introduction of a carbon tax increasing the cost of running the Group’s

largecommercial vehicle fleet and property.

Operations, Market

Medium Short

Ban on the sale of petrol and diesel vehicles requiring alternative

fuelvehicles.

Operations, Supply chain

High Short to

Medium

Reputational damage as peers transition more successfully/swiftly. Operations, Market

High Medium

Growing costs due to increased demand for electricity, especially

fromrenewable sources.

Operations, Market

High Short to

Medium

Strategic Report

Royal Mail plc

Annual Report and Financial Statements 2021-22

50

TCFD Statement continued

Financial impacts

Our Royal Mail business has begun reviewing the estimated

potential financial implications associated with two transition

risks,which are likely to impact the business within the next five

years (GLS has not yet performed a quantitative analysis of its

transition risks).

While both transition risks are not individually material to the

business, suitable mitigations can be put in place to reduce the

financial risk to our business over time. These are:

1. Ban on the sale of petrol and diesel vehicles requiring alternative

fuelvehicles. Such a ban would have wide ranging impact on our

transition to EVs by 2030. This year we have focused on the impact

of taxation and duty changes, including a distance-based road

pricing system, and potentially increased taxation for fossil fuel

andelectricity.

2. This is the estimated increased cost impact of growing demand

for electricity, especially fromrenewable sources, as we continue

to automate and electrify our operations towards 2030, but does

not reflect potential savings from self-generating renewables.

Group priority transition risks Business element impacted Risk rating Time horizon

Enhanced investment in energy efficiency through a

greaterproportionof renewable energy sourced for the Group.

Operations, Supply chain

Medium Medium

Increasing customer/consumer demand for clean

deliverymechanismsand new products/services.

Operations, Market

High Short to

Medium

Transition risk Likelihood and timeframe Financial impact estimate

2. Growing costs due to increased

demand for electricity, especially

fromrenewable sources.

Likelihood:

Likely

Risk timeframe:

By 2030

Increase in operating cost:

£20-50M

Impact:

Not material

1. The transition to electric vehicles

changes the road, fuel and vehicle

taxation system.

Likelihood:

Likely

Risk timeframe:

By 2030

Increase in operating cost:

Range £0-20M

Impact:

Not material

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Royal Mail plc

Annual Report and Financial Statements 2021-22

51

Through the implementation of risk management processes that

promote a sound control environment, we seek to identify, assess

and manage risks that could impact our business.

Risk management framework

Risk management processes and controls are utilised across

theGroup. The Board has overall accountability for ensuring

thatweoperate sound risk management procedures and, on at

least anannual basis, the Board assesses their effectiveness

(seepage87).

The Board has delegated responsibility for reviewing the

effectiveness of the Group’s risk management and internal control

systems to the Audit and Risk Committee (the ARC). The ARC seeks

to ensure that the Group operates prudent and effective controls

that allow significant risks to be identified, assessed and managed.

The ARC, in turn, is supported by the Risk Management (RM)

Committee, theFinance Committee and the GLS Audit and Risk

Committee infulfilling its duties.

Risk management policies and procedures are utilised across the

Group and we provide training and guidance to relevant personnel.

Management teams across Royal Mail and GLS are responsible for

the management of specific operational risks anddeveloping

actions to mitigate their impact.

Our risk management processes and controls are designed to

manage rather than eliminate risk. Taking on manageable risks

isan inherent part of the Group’s commercial activities and the

framework we operate can only provide reasonable and not

absolute assurance against misstatement or loss.

Our risk management framework

Board

Risk Management Committee

Royal Mail & GLS Executive Boards

ARC

Finance Committee

GLS Regional Management

GLS Audit and Risk Committee

Royal Mail Business Unit Leadership

Third line

 Independent assurance

by internal and external

providers over adequacy

and effectiveness of

mitigation provided

tothe Board.

Second line

 Compliance monitoring

and oversight of first

linethrough regular

reviews, assessments

and dedicated

oversightfunctions.

First line

 Primary controls

tomanage risks in

day-to-day operations.

Top down

Principal

risk management

 Review external environment.

 Set risk appetite.

 Determine strategic response.

 Identify principal risks.

 Oversee mitigation plans.

 Monitor progress towards risk appetite.

 Execution and delivery of mitigating actions.

 Report on progress towards risk appetite.

 Assess effectiveness of risk management

process and internal control systems.

 Monitor principal risks.

 Report on principal risks and uncertainties.

 Consider completeness of identified risks

andadequacy of mitigation activity.

 Consider aggregate of risks across

thebusiness.

 Report current and emerging risks.

 Identify, evaluate and mitigate risks.

 Maintain risk profiles.

Bottom up

Business unit/Regional*

riskmanagement

* During the year GLS commenced the implementation of regional risk management which will complete during the 2022-23 financial year.

Strategic Report

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Annual Report and Financial Statements 2021-22

52

Risk Management

Risk appetite

The Board sets the Group’s risk appetite. This determines the

targetlevel of risk we are prepared to take to achieve ourstrategic

objectives over the medium to long term and the extent of controls

we need tooperate inorder to mitigate such risks.

The ARC monitors the Group’s risk management activity within

therisk appetite throughout the year. Focused discussions

onprogress towards target risk levels take place at the RM

Committee and ARC meetings at least twice a year.

Our Royal Mail and GLS management teams are accountable

foridentifying and managing risks and for delivering the

Group’sobjectives in accordance with the Group’s risk appetite.

To achieve our strategic objectives, it is necessary to take on,

oraccept, certain risks. In doing so, we seek to ensure that:

 We clearly understand our significant risks, their likelihood

andpotential impact.

 The level of risk we take, or accept, is balanced against the

potential benefits.

Our risk appetite ranges across low, low to moderate and moderate

to high tolerance levels and is broadly mapped against three risk

categories as illustrated in the adjacent table.

1. The icons on this page and the following page are colour coded to illustrate the risks that relate to Royal Mail (red) and those that relate to GLS (blue).

Risk appetite

Moderate to high

The Group takes well-informed and

well-managed risks to achieve strategic

objectives if potential benefits outweigh

risks, particularly where the external risks

are less in Management’s directcontrol.

2

7

Low to moderate

The Group works to achieve strategic

objectives through accepting, managing

and/or reducing risk to a low to moderate

level, as appropriate.

1

3

4

5

6

8

Low

The business seeks to reduce the risk to

alow level as far as practically possible.

9

10

11

Strategic/

External

Operational/

Financial

Legal,

compliance

and regulatory

Risk category

Risk appetite level and link to principal risks

1

(see pages 56 to 61)

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53

Impact

Likelihood

Low Low to moderate

Moderate to high

High

3

1

24

8

7

5

11

10

9

6

Risk heatmap

Principal risks (see pages 56 to 61)

1

Failure to reduce our cost base

2

Economic and political environment

3

Major breach of information security, data

protectionregulation and/or cyber-attack

4

Customer expectations and our responsiveness

tomarket changes

5

Industrial action

6

Talent – workforce for the future

7

Our UK regulatory framework

8

Environmental and sustainability

9

Actual or suspected breaches of material law

and/or regulation

10

Business continuity and operational resilience

11

Health, safety and wellbeing

Our principal and emerging risks

Our principal and emerging risks are assessed by the Board on a

bi-annual basis and monitored by the ARC across the year. The

Board confirms that robust risk assessments were completed

during the financial year.

Our principal risks are detailed on pages 56 to 61. They are ordered

on a net risk basis which takes into account the estimated magnitude

of potential impact and probability of occurrence. Our principal

risks are also reflected in the key assumptions that form part of

ourviability assessment process (see pages 62 and 63).

The graphic above illustrates our assessment of the likelihood of

our principal risks occurring and their estimated impact, and takes

into account the mitigating actions in place to manage each risk.

Net risks can move depending on circumstances at any time.

Movements compared to prior year have been highlighted on

pages56 to 61.

War in Ukraine

Following the commencement of the war in Ukraine and the

imposition of sanctions on Russia, we have assessed the potential

impact on the Group. We do not rely on goods or services procured

from or sold into impacted regions and we do not own any business

assets in those regions. While there is no direct impact, we have

identified a number of areas that are indirectly affected. A prolonged

war could result an extended period of higher inflation and energy

costs, reduced consumer spending and an increased threat of

cyber-attacks. We have reflected this indirect impact in the following

existing principal risks which are set out on pages 56 and 57:

 Failure to reduce our cost base – inflationary cost pressures.

 Economic and political environment – reduction in consumer

confidence due to increased cost of living and lower GDP growth.

 Major breach of information security, data protection regulation

and/or cyber-attack – increased threat of cyber-attacks.

Strategic Report

Royal Mail plc

Annual Report and Financial Statements 2021-22

54

Risk Management continued

Strategy and objectives

Assessment

Identification

Monitoring

Risk analysis

Impact/likelihood

Tolerate/Mitigate/Transfer

Risk response

Description and scope

Reporting

Risk identification, analysis and response

Identification, analysis and response

The identification and analysis of individual risks is a continuous

process that takes account of the internal and external business

environment as well as the effectiveness of the risk controls we

operate. Principal risk profiles are maintained by relevant members

of the Royal Mail and GLS Executive Boards. Business Unit risk

profiles are also maintained at functional levels across the Royal

Mail business. During the year, GLS started to develop regional

levelrisk profiles across its business which will be fully

implemented during 2022-23.

Gross, net and target risk scores are evaluated as a product of

impact and likelihood, and are represented visually on heatmaps

within risk profiles to facilitate analysis and Management focus.

These risk profiles provide visibility to Management over the

effectiveness of control activities and mitigations. Each risk is

assessed considering the likelihood of the event occurring based

onmultiple factors, the full range of potential impacts and their

severity should the event occur.

We identify emerging risks through various discussions with

Management and subject matter experts and other external

insights. All relevant information is captured in a horizon-scanning

radar which serves to illustrate our potential exposures across a

number of risk categories and helps us assess whether we are

adequately prepared for new and potential future risks and any

opportunities they may create.

Monitoring and reporting

Throughout the year, Royal Mail business unit leadership teams

regularly review the risk profiles covering their functional areas

ofresponsibility. Formal risk assessments are undertaken on

abi-annual basis to coincide with the Group’s full- and half-year

reporting cycle. GLS’ principal risk profile is reviewed by subject

matter experts and GLS Executive Board members twice a year.

In2022-23 this bi-annual review process will be supplemented

bythe regional risk profile reviews described above. The outcomes

of these bi-annual assessments are reviewed by the RMCommittee,

the GLS Audit and Risk Committee and the ARC, andare used to

inform and determine the Group’s principal risks.

Emerging risks

We report the results of emerging risk activity to the ARC, taking into

account of both external and internal factors to ensure that a holistic

view is taken. We have increased the frequency of emerging risk

reporting as part of the half-year and year-end risk assessments.

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Royal Mail plc

Annual Report and Financial Statements 2021-22

55

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 efficient and agile

tocompete effectively in the parcel and

lettermarkets.

The success of our strategy relies on the

reduction of our cost base whilst managing

wider economic pressures and the Industrial

Relations environment to deliver productivity

benefits across all areas of the business.

Failure to reduce costs while at the same time

delivering high-quality services could result in

aloss of customers, market share and revenue.

In common with many businesses, there are

inflationary cost pressures across the Group,

exacerbated by the war in Ukraine including

labour, energy and other supply costs.

While our delivery network in Royal Mail provides

a strong competitive position, particularly in the

combined delivery of letters and small parcels,

itis not currently optimised for the increased

demand for flexible acceptance times and

largerparcels.

Effective working relationships with our trade

unions are key to the delivery 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.

We have a number of initiatives in place to

driveefficiency across the Group, including:

 Transforming our UK business from

aletters-led to a parcels-led operation

throughnetwork optimisation.

 Building dedicated parcel hubs and installing

automated parcel sorting machines.

 Embedding a range of digitally enabled

worktools.

 Simplifying products and services

anddeveloping customer-focused

technologysolutions.

 Accelerating GLS’ pricing and

productivityinitiatives.

 Reviewing the operational efficiency

ofGLS’networks.

For further detail on initiatives to improve

productivity see pages 19 and 20.

2. Economic and political environment – High risk

Macro-economic conditions and/or the political

environment across our markets may adversely

affect the Group’s ability to control costs and

maintain and grow revenue due to reducing

volumes or by driving customers to adopt

cheaper products or formats for sending

lettersand parcels.

We continue to monitor the economic, political

and wider external environment across all

ofourmarkets.

The economic outlook has worsened and is

dependent on the extent to which the global

economy recovers following the pandemic. A

prolonged war in Ukraine could have an adverse

effect on our costs, supply chain, business

confidence andcustomer behaviour, which will

impact letter and parcel volumes.

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.

 Regular review and update of scenarios to

inform a range of medium- and long-term

economic outcomes and strategic actions to

maintain a strong liquidity position, with good

levels of cash and limited financial debt.

 Hedging exposure to commodity costs

andpricing initiatives to offset inflationary

costpressures.

 Executing an efficiency programme to build

resilience into the operating model and agility

to respond to revenue and cost headwinds.

 Ongoing monitoring of political and policy

changes and regular engagement with

politicians and policy makers, as appropriate.

Strategic Report

Royal Mail plc

Annual Report and Financial Statements 2021-22

56

Our Principal Risks and Uncertainties

Risk Status Controls and actions to mitigate

3. Major breach of information security, data protection regulation and/or cyber-attack – High risk

Due to the nature of our business, we collect,

process and store confidential business and

personal information. As a result, we are

subject to a range of laws, regulations and

contractual obligations around the governance

and protection of various classes of data to

protect our customers, employees,

shareholders and suppliers.

In common with all major organisations, we

arethe potential target of cyber-attacks that

could threaten the confidentiality, integrity and

availability of data, and trigger material service

and/or operational interruption.

Also, a major breach of information security,

data protection laws and regulations and/or

cyber-attack could adversely impact our

reputation, resulting in financial loss,

regulatoryaction, business disruption

andlossof stakeholder confidence.

Given the evolving nature, sophistication and

prevalence of these threats, including those

presented by the war in Ukraine, the hybrid

workforce driven by the pandemic and an

increasing reliance on technology and data

foroperational and strategic purposes, this

continues to be a principal risk.

We also recognise that in a business with more

than 161,000 people and large quantities of

documentation, there is a possibility of human

error in the protection of data.

 Continually investing in cyber resilience

including enhancing our cyber control

capabilities across our technology estate

toprotect our customers, colleagues,

servicesand assets.

 Strengthening our preparedness to quickly

detect and respond to threats before they

become incidents, including ransomware.

 Ongoing assurance of organisational and

technical measures, including disaster

recovery and assessment of third-party

supplier controls.

 Promoting good behaviours and stressing

theimportance of maintaining vigilance

through regular communication, training

andawareness across our workforce.

 Encouraging an open and prompt reporting

culture so appropriate remedial action can

betaken as soon as possible.

 Data privacy and protection policies and

compliance programme, which includes

assessment and monitoring of data risks

across the global business.

4. Customer expectations and our responsiveness to market changes – High risk

Failure to deliver against existing and changing

customer needs and expectations (including

quality of service) could impact the demand for

our products and services.

Our success at growing new areas of business

isdependent on identifying profitable and

sustainable areas of growth and having in

placeappropriate structures to support

transformation.

The pandemic and, in particular, the rapid growth

in online business and increased parcel volumes,

has accelerated structural changes in our

markets. To remain competitive, it is more

important than ever that we meet customers’

evolving expectations, such as the increasing

importance of ESG (see risk 8. Environmental and

sustainability), and continue to harness growth

opportunities in a sustainable and profitable way.

The economic outlook has worsened asaresult of

the pandemic and a prolonged warin Ukraine

could further affect business confidence and

consumer spending, which in turn could adversely

affect parcel and letter volumes.

We are becoming more customer centric and we

are responding to market changes by:

 Restoring Royal Mail’s quality of service.

 Driving new product development based on

customer feedback, including increasing the

proportion of products that can be tracked and

other incentives to encourage reconnection

with letters and mail services.

 Leveraging our UK footprint as the sole

designated Universal Service Provider.

 Delivering sustainable growth and customer

innovation through the Accelerate GLS strategy.

 Growing new areas of business and expanding

service offerings.

 Pricing/surcharge opportunities that do not

inhibit value growth.

For further information see pages 10 and 11 and

pages 14 to23.

Royal Mail strategy GLS strategy Change in risk score during the year

Customer Connect Europe

Increasing risk – Low to Moderate

/ Moderate to High risk

Trust

Strengthen 2C parcel market

position and lead in 2B

Decreasing risk – Moderate to

Low / High to Moderate risk

Growth Inspire the market Stable risk – no change

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

57

Risk Status Controls and actions to mitigate

5. Industrial action – High risk

There is extensive trade union representation

across our UK workforce, with strong and

activetrade unions.

One or more material disagreements or

disputescould result in widespread localised

ornational industrial action.

We may be unable to obtain the necessary

legislative changes to enable us to implement

the Royal Mail Collective Pension Plan (RMCPP),

as agreed with the CWU.

Industrial action could cause material

disruptionto our UK business and likely

resultinan immediate and potentially ongoing

significant loss of Group revenue. It may also

affect Royal Mail’s ability to restore Quality

ofService and meet targets prescribed

byOfcom, which may lead to enforcement

action, fines and loss of customers.

The success of Royal Mail is reliant on the

dedication of its people and the delivery of

itstransformation programme. One of our

strategic priorities is to rebuild trust and develop

positive working relationships with our people

and unions. As a result of the increasingly

uncertain external environment, competition and

growing inflationary costs, the transformation of

the Royal Mail business needs to be accelerated.

This, together with a rise in the cost of living, is

increasing the risk of industrial action.

The Pension Schemes Bill, of which RMCPP is

apart, received Royal Assent in February 2021

and is now allowed by law. However, further

regulatory changes and approvals will be

required by the 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.

 Royal Mail CEO, Group CFO and members of

theRoyal Mail Executive Board regularly meet

with union leaders.

 Joint implementation of the Pathway to

Changeagreement.

 Regular engagement with CWU and

Government to introduce the necessary

legislative and regulatory changes for RMCPP.

 Engagement with unions on the 2022 pay deal

and the operational management restructure.

 Use of the dispute resolution procedures to

reach agreement.

 Operational contingency plans in the event of

industrial action.

 Continuing to rebuild trust with our employees

through engagement, communication and

supporting them in the delivery of the

businessgoals.

6. Talent – workforce for the future (previously called ‘Capability – talent and strategic workforce planning’) – Moderate risk

Our performance, operating results and future

growth depend on our ability to attract and

retain talent with the appropriate skills and

expertise across the Group.

In Royal Mail, workforce planning could be

adversely impacted by an ageing workforce

anda reduction in available workforce due to

socio-economic factors, demographic change

and increasing digitalisation.

A high level of employee trust and engagement

is essential if we are to deliver Royal Mail’s

transformation and growth strategy.

The Royal Mail transformation programme,

together with the structural changes in the letter

and parcel delivery markets, is changing the

nature of some roles and creating the need for

new and different skills.

We need to upskill and develop our existing

workforce, and attract new people with the

rightcapabilities and behaviours to support

thedelivery of our strategic ambitions.

As GLS’ business continues to grow, the need for

strong and effective management in all region

are essential.

 Regular Senior Management talent reviews

and succession planning supported by external

recruitment where key skills are required.

 Leadership development programmes to

support transformation and strengthening

performance management.

 Diversity, equality and inclusion (DEI) initiatives

to accelerate DEI across our teams.

 Implementation of a workforce plan aligned

with the strategy and commercial outlook.

 Generational change initiatives including Postal

Apprenticeships and the Royal Mail Academy.

 Regular trust and employee engagement

surveys, improved communications and

useofdigital tools.

 GLS regional management succession planning.

Strategic Report

Royal Mail plc

Annual Report and Financial Statements 2021-22

58

Our Principal Risks and Uncertainties continued

Risk Status Controls and actions to mitigate

7. Our UK regulatory framework – Moderate risk

The continuing structural decline in addressed

letter volumes, and broader changes in the

parcels market poses significant risks to the

financial sustainability of the Universal Service

Obligation (USO).

There is a further risk that Ofcom fails to change

and modernise theregulatory framework in

order to preserve the scale and relevance of the

postal USO, or chooses to change the framework

in a way which impacts our customer strategy or

is commercially disadvantageous to RoyalMail.

Given the scale of our transformation in Royal Mail

and the pace of change in the postal sector, we

need the right regulatory framework in place to

make a reasonable return on our investment and

have the commercial flexibility to innovate and

keep pace with the market and consumer needs.

Ofcom is undertaking a review of postal regulation

and published its consultation in December 2021.

Ofcom has stated that the current system is

generally working well 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.

We are engaged in a number of activities that

arefocused on securing the future sustainability

of the USO, including:

 Active participation in Ofcom’s consultation

process, including providing detailed,

evidence-based submissions to Ofcom.

 Executing the Royal Mail transformation

planto underpin the sustainability of the

USO.This will help us become even more

efficient and better placed to respond to

changing customer demands.

 Working with Ofcom, Government and the

unions more broadly to ensure that the Royal

Mail business is financially sustainable.

 Extensive stakeholder engagement programme

during the review of postal regulation.

8. Environmental and sustainability (see also our TCFD Statement on pages 46 to 51) – Moderate risk

Transition risks:

As our customers and stakeholders seek to

adapt to climate change, demand is increasing

for more sustainable products and services. The

cost of operations could increase as we adapt to

government and regulatory changes in response

to a drive to net zero emissions and air quality

targets for towns and cities.

In common with all major organisations,

thereisa risk of reputational damage and/or

loss of revenue if we do not meet stakeholder

expectations for action on climate change.

Physical risks:

An increase in the frequency of extreme

weather events may result in disruption

toouroperations and impact our ability

tomeetcustomer expectations, the USO

orother 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.

Demonstrating leadership on ESG issues,

including the environmental impact of our

activities, is the right thing to do. It is also

essential if we are to achieve competitive

advantage, create value and deliver our strategy.

Delivering a sustainable network has been

embedded in Royal Mail and GLS’ strategies for

some time. We are increasing our focus in this

area. During the year we developed Group ESG

Principles and updated Royal Mail and GLS’

environmental strategies (see pages 30 to 33).

We continue to review our business strategies

toaddress and manage the most important

ESGissues, embed these into our processes

andseek to comply with the guidelines of the

TCFD forenvironmental risks.

 Development of a Group-wide ESG framework.

 Executing enhanced Royal Mail and

GLSenvironmental strategies including

accelerated ambitions for decarbonisation.

(see pages 32 and 33).

 Investing in zero- and low-emission vehicles

and installing efficient equipment across our

property estate.

 Investing in innovative technologies, such as

telemetry, and driver training programmes,

toimprove operational efficiency and reduce

our fuel consumption.

 Opening new EcoHubs with renewable energy

generation and sustainable infrastructure

across GLS’ network.

 Engaging our people in our efforts to

becomemore efficient and reduce our

useofnatural resources.

 Reducing our energy and water consumption

and reducing the amount of waste we generate.

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

59

Risk Status Controls and actions to mitigate

9. Actual or suspected breaches of material law and/or regulation (previously called ‘Competition Act investigation’) –

Moderate risk

Failure to comply with relevant material laws

and regulations that apply to our business,

including competition, anti-bribery, Ofcom

essential conditions and quality of service

targets, trade sanctions and corporate

governance. Actual or suspected breaches

couldresult in financial loss, fines, regulatory

enforcement action, criminal charges,

debarment and/or reputational damage

impacting our ability to operate and grow.

This risk previously focused on the competition

law investigation relating to the Royal Mail

business, which is described on pages 216 and

218. It has been broadened and now reflects all

the material laws and regulations that the Group

must complywith. There has been continued

focus on controls in relation to competition

lawand as such the overall risk to the Group

hasdecreased.

In May 2021, the Group’s appeal against the

Competition Appeal Tribunal’s judgement to

uphold Ofcom’s decision to fine Royal Mail £50

million was rejected by the Court of Appeal (CoA),

The Group is now 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.

 Policies, training and guidance to colleagues to

raise awareness of risks, required mitigation

and expected standards of conduct.

 Regular assessment of risks and advice by

specialist lawyers.

 Horizon scanning to prepare for legislative

changes and developing policies and processes

to address them.

 Monitoring of compliance and provision

ofassurance.

 Fostering a culture where colleagues can

speak up so we can promptly address any

issues and stop them happening again.

 Quality of service monitoring and

restorationactivity.

10. Business continuity and operational resilience (previously called ‘Business continuity and crisis management’) –

Moderate risk

We may fail to successfully respond to, recover

from, or reduce the impact of a major threat or

disruptive incident that could cause widespread

operational disruption and financial loss to the

Group, our customers and our supply chain. This

could also impact on the ability of Royal Mail to

meet its regulatory obligations.

Royal Mail is classified by the Department

forBusiness, Energy & Industry Strategy as

critical national infrastructure and also has a

responsibility to provide sustained and continued

postal services under the USO. The temporary

relaxation by Ofcom of some Universal Service

requirements during the pandemic has now

ended. The pandemic has been a robust test

ofour business continuity arrangements.

GLS has a growing geographical footprint and has

an interconnected international network across

Europe and the US.

 Regular comprehensive reviews of business

continuity and crisis management governance

including operational contingency plans.

 Established functional response teams,

comprising Senior Management and executive

leadership, embedded across thebusiness.

 Tactical arrangements in place to support

operational incident management.

 Regular testing of disaster recovery plans

andalignment with business continuity plans.

 Ongoing monitoring of operational processes

to minimise disruption related to the pandemic

whilst keeping our people and customers safe.

Strategic Report

Royal Mail plc

Annual Report and Financial Statements 2021-22

60

Our Principal Risks and Uncertainties continued

Risk Status Controls and actions to mitigate

11. Health, safety and wellbeing – Moderate risk

A health and safety incident or global health

crisis could result in the serious injury, ill health

or death of our people or members of the public.

An incident may lead to criminal prosecution

orfines by the enforcing authority or civil

actionby the injured party resulting in large

financial losses and/or reputational damage.

Within GLS there are also health and safety

risks associated with subcontractors utilised

across the business.

Failure to manage the health and wellbeing of

our people could lead to reputational damage,

loss of employee goodwill and financial losses

through increased sickness absence, lower

productivity, and failure to deliver the USO,

civilaction or criminal prosecution.

The health, safety and wellbeing of our people,

customers and members of the public is of

paramount importance.

We have many employees, including seasonal

staffand agency workers. We also operate a very

large fleet of vehicles, employ a large number of

contractors and interact extensively with members

of the public. A large proportion of our people

spend most of their time working outdoors, on

footor driving, where the environment is

unpredictable and more difficult to control.

Due to our wide reach and the number of people

affected by the Group’s undertakings, the risk

ofserious harm to people cannot be totally

mitigated. 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.

 Policies, procedures, systems and

tools,supported by tailored training and

awareness programmes to embed a

compliance culture and engage our

employeesin safety improvement.

 Monitor health and safety performance

metricsand undertake regular audits

againstour systems and processes.

 Extensive employee health and wellbeing

policies and programmes to support

absenceand return to workplace.

 Continuing to streamline and simplify the

various health and safety systems in place

toenhance their effectiveness.

 Group-wide measures to protect and

supportour employees through the

pandemic,ensuring necessary safety

precautions, in line with Public Health

Englandand World Health Organization

guidance and provision of wellbeing support.

 Communications to employees through a

dedicated, comprehensive multi-mediacampaign.

Further information is provided on pages 36 to 38.

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

61

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

This Viability Statement should be read in conjunction with the

Group’s business model and strategy, which are set out on pages

12and 13 and 14 to 23 respectively.

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 pages 56 to 61).

 The Group’s capital structure and the allocation of capital to

support Royal Mail and GLS’ respective growth strategies (see

page 72). This includes capital investment, liquidity position

(including liquidity available from the syndicated loan facility (see

page 206)), 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 £50 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 €370 – €410 million.

 GLS €500 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 on pages 74 and 75 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 on

the adjacent page, 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 €500 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 pages 52 to 61).

 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 (see page 206).

 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 capital allocation policy on

page 72 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.

Strategic Report

Royal Mail plc

Annual Report and Financial Statements 2021-22

62

Viability Statement

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 on pages

64to75. 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 on pages 164 to 176.

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.

Scenarios modelled

and assumptions

Principal risks

(see pages 56 to 61)

Scenario: Deteriorating economic and market conditions.  Economic and political environment

 Customer expectations and our

responsiveness to market changes

 Business continuity and operational

resilience

Assumptions: Further letter volume decline. Continued impact

oflowerinternationalandcross-border volume.

Scenario: Increased competition in the UK parcels sector including

changesinconsumer expectations and/or market disruption.

 Customer expectations and our

responsiveness to market changes

Assumptions: Lower parcel revenues.

Scenario: Potential impact of industrial action or incurring costs to avoid it.  Industrial action

 Failure to reduce our cost base

 Customer expectations and our

responsiveness to market changes

Assumptions: Lower operating profit as a result of industrial relations.

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

 Failure to reduce our cost base

Assumptions: Increased non-people costs in Royal Mail.

GLS margin decline.

Scenario: Cyber-attack triggering material service and/or operationalinterruption.  Major breach of information security,

data protection regulationand/or

cyber-attack

 Business continuity and

operationalresilience

Assumptions: Cyber breach impacting revenue collection for one week.

Scenario: Continued high sick rate absence.  Health, safety and wellbeing

Assumptions: Sick absence above historic average.

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

63

“ Solid performance

assisted by COVID-19

related tailwinds,

but anincreasingly

challengingbackdrop.”

Summary results (£m)

1

Reported

52weeks

March

2022

Specific

items and

pension

adjustment

Adjusted

2

52 weeks

March

2022

Reported

52weeks

March

2021

Specific

itemsand

pension

adjustment

Adjusted

²

52weeks

March

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 on pages 228 to 232 and reconciliations to the closest measure prescribed under IFRS are provided where appropriate.

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 on page 228 to 232

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.

Mick Jeavons

Group Chief Financial Officer

Strategic Report

Royal Mail plc

Annual Report and Financial Statements 2021-22

64

Financial Review

52 weeks ending March % change

Revenue (£m) 2022 2021

4

2020

4

2022 vs

2021

2022 vs

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

Volume (m units) 2022 2021 2020

2022 vs

2021

2022 vs

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: £21 million, 2020-21: £51 million, 2019-20: £41 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 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 £584 million (2020-21: £618 million), £34 million

lower than the prior year. Operating specific items were a cost of

£7 million (2020-21: £7 million) and non-operating specific items

were a credit of £136 million (2020-21: credit of £153 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 £56 million to

£758 million (2020-21: £702 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 £662 million (2020-21: £726 million)

comprises a £346 million profit in Royal Mail (2020-21: £398 million

profit) and a £316 million profit inGLS (2020-21: £328 million profit).

Basic reported earnings per share decreased to 61.7 pence

(2020-21: 62.0 pence).

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%.

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

65

Segment – Royal Mail

Royal Mail adjusted operating profit improved 20.9% to £416 million

(2020-21: £344 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 £250 million (2020-21: £271 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®/48® and Tracked

Returns® performed well with volumes growing 17% (2020-21: 79%

growth). Excluding the effect of test kits, Tracked 24®/48® and

Tracked Returns®, 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%.

Strategic Report

Royal Mail plc

Annual Report and Financial Statements 2021-22

66

Financial Review continued

Adjusted operating costs

2

(£m)

Adjusted

52weeks

March

2022

Adjusted

52weeks

March

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 on pages 228 to 232.

Total adjusted operating costs decreased by2.5% year-on-year.

Weestimate that total COVID-19 related costs reduced by

£53 million to £92 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.£285 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

£93 million charge in the prior year for the management restructure

announced in June 2020 compared with £70 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 £6 million.

The management restructure programme (announced in June

2020) delivered in line with our expectations, with sustainable

benefits of £115 million in the year.

We delivered £59 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 £100 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

£18 million year-on-year to £62 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 £122 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 £112 million of

benefitsdelivered in 2021-22.

Within non-people costs, we estimate the costs associated with

thepandemic to be £30 million (2020-21: £65 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

£72 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 £191 million (2020-21: £187 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.£20 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 £58 million (2020-21: £45 million) are also

included in other operating costs.

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

67

Segment – GLS⁸

Summary results⁹ (£m)

March

2022

March

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)%

(€m)

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

£342 million (2020-21: £358 million). Foreign exchange movements

adversely impacted revenue by £207 million and favourably

impacted costs by £191 million resulting in a net reduction to

operating profit of £16 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

(£m)

March

2022

March

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.

(€m)

March

2022

March

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.

Strategic Report

Royal Mail plc

Annual Report and Financial Statements 2021-22

68

Financial Review continued

Other Group financial performance measures

Specific items and pension charge to cash differenceadjustment

(£m)

52weeks

March

2022

52weeks

March

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

£174 million in the year (2020-21: £84 million), £90 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 £11 million credit

(2020-21: £16 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 £16 million

(2020-21: £19 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

£72 million (2020-21: £36 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).

Furtherdetail is provided on page 73.

Net pension interest credit of £64 million (2020-21: £117 million)

iscalculated by reference to the net pension surplus at the start

ofthefinancial year. The decrease in the year of £53 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.

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.

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

69

The tax credit of £62 million (2020-21: £37 million) includes a net

credit of £30 million (2020-21: £37 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 £32 million

(2020-21: £nil) 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 £51 million (2020-21: £38 million)

comprise interest on bonds (including cross-currency swaps)

of£24 million (2020-21: £24 million), interest/fees on the bank

syndicate loan facility of £2 million (2020-21: £6 million), interest

onleases of £29 million (2020-21: £26 million) and other net interest

payable of£2 million (2020-21: £1 million receivable). This is offset

by interest income of £6 million (2020-21: £17 million) which

includes £1 million (2020-21: £12 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€500 million and

€550 million bonds is accounted for in equity.SeeNote 7 of the

Financial Statements (page 181) forfurther information.

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 2022 52 weeks ending March 2021

(£m) Royal 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 on pages 228 to 232 and reconciliations to the closest measure prescribed under IFRS are provided where appropriate.

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 £192 million (2020-21: £188 million) shown in the statutory cash flow is made up of the capital element of operating lease payments of £166 million

(2020-21: £156 million) and the capital element of finance lease payments of £26 million (2020-21: £32 million).

10. SONIA – Sterling OverNight Indexed Average.

11. SOFR – Secured Overnight Financing Rate.

12. ISDA – International Swaps and Derivatives Association.

Strategic Report

Royal Mail plc

Annual Report and Financial Statements 2021-22

70

Financial Review continued

In-year trading cash flow

In-year trading cash inflow was £519 million, compared with

£770 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 £59 million

outflow. During the current year deferred revenue on stamps

purchased in prior year fell by £44 million (2020-21: £8 million

increase) resulting in a £52 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 £40 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 £603 million

(2020-21: £346 million), of which GLS spend was £162 million

(2020-21: £136 million). Royal Mail capital expenditure was

£441 million in total (2020-21: £210 million), of which £205 million

(2020-21: £91 million

15

) was transformational spend. Transformational

spend increased as we invested in parcel hubs and automation.

Royal Mail maintenance spend increased by £117 million to

£236 million (2020-21: £119 million

15

). This additional spend

predominantly relates to vehicle purchases, including £74 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 £17 million. Royal Mail income

taxpaid of £23 million was £31 million lower than the prior year,

mainly due to the effect of the Super-deduction enhanced capital

allowances claims. GLS income tax paid of £85 million was

£14 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

£166 million(2020-21: £156 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 £353 million (2020-21: £614 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 debt¹

A reconciliation of net debt is set out below.

(£m)

52 weeks

March

2022

52 weeks

March

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 on pages 228 to 232 and

reconciliations to the closest measure prescribed under IFRS are provided where appropriate.

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

£4 million (2020-21: £4 million) consisting mainly of Industrial

Diseases claims and National Insurance related to employee

freeshare payments.

Acquisition of business interests of £204 million relates mainly

tothe acquisition of Rosenau Transport. The prior year balance

of£4 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 £99 million (2020-21: £13 million). Further details are provided

in the London Development Portfolio section on page 73.

The amount of GLS client cash held at 27 March 2022 was

£36 million (2020-21: £41 million).

New or increased lease obligations under IFRS 16 of £380 million

(2020-21: £173 million) relate to additional lease commitments

thatwere entered into during the year. Property lease additions,

modifications and acquisitions totalled £335 million

(2020-21: £121 million), of which £81 million relates to theMidlands

hub; £148 million relates to 243 Royal Mail property rentreviews,

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

71

Objectives Enablers 2021-22 update

Meet the

Group’s

obligations

asthey

falldue.

Maintaining sufficient cash

reserves and committed

facilities to:

 Meet all obligations,

including pensions.

 Manage future

risks,including

theprincipal risks.

At 27 March 2022, the Group had available resources of £2,096 million (2020-21: £2,457

million) made up of cash and cash equivalents (excluding GLS client cash) of £1,101 million

(2020-21: £1,532 million), current asset investments of £70 million (2020-21: £nil) and

undrawn committed bank syndicate loan facilities of £925 million (2020-21: £925 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 €500 million and €550 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 a

progressive

dividend

policy.

Generate sufficient in-year

trading cash flow to cover

the ordinary dividend.

Maintain sufficient

distributable reserves

tosustain the Group’s

dividend policy.

The Group reported £353 million of pre-IFRS 16 in-year trading cash flow (2020-21: £614

million), sufficient to cover the proposed full-year ordinary dividend (subject to approval at

the AGM) of 20.0 pence per share (final dividend of 13.3 pence per share combined with the

interim dividend of 6.7 pence per share paid in January 2022) (2020-21: 10.0 pence per share).

Capital managed by the Group, excluding the pension scheme surplus net of

withholding tax payable, is£2,611million at 27 March 2022 (2020-21:£2,416 million).

The Group had retained earnings of £5,248 million at 27 March 2022 (2020-21: £4,802

million). The Group considers it has a maximum level of distributable reserves of

around £2 billion, which excludes the impact of the pension surplus on retained

earnings, more than sufficient to cover the dividend.

Reduce

thecost of

capital for

theGroup.

Target investment grade

standard credit metrics

i.e.no lower than BBB-

under Standard & Poor’s

rating methodology.

During the year, the Group maintained a credit rating of BBB withStandard & Poor’s

andthe outlook was revised from negative to positive.

Retain

sufficient

flexibility

toinvest in

the future of

thebusiness.

Funded by retained cash

flows and manageable

levels of debt consistent

with our target creditrating.

During the year, the Group made total gross capital investments of £603 million

(2020-21: £346 million) and acquisition of business interests of £204 million

(2020-21:£4million) while retaining sufficient capital headroom.

Both Royal Mail and GLS generated cash to fund their own organic investment and

contribute towards inorganic investment and capital distribution (see page 70).

Maintain

suitable

financial

leverage.

Retain sufficient leverage,

commensurate with the

Board’s assessment of

therisk environment.

In November 2021, the Directors stated that they expect to move towards a net

nilcashposition (pre-IFRS 16) over the next two years from a net cash position

at26September 2021 of £685 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£201 million (2020-21: nil).

The net cash position (pre-IFRS 16) at 27 March 2022 was £307 million (2020-21:

£622million).

lease regears and renewals (a larger amount than previous years due tothe phasing of lease contracts); £24 million is for property leases

taken on as part of the Rosenau acquisition; and £82 million relates toa number of other GLS properties reflecting capacity increases, rent

reviews and renewals/extensions. Lease obligations have also increased by £45 million (2020-21: £52 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

£307 million (2020-21: £622 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.

Strategic Report

Royal Mail plc

Annual Report and Financial Statements 2021-22

72

Financial Review continued

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 £2 million. However, a 10% increase in fuel duty/other

additional costs would reduce operating profit by £15 million.

Without hedging, diesel and jet fuel costs for 2022-23 would

bearound £45 million higher, while gas and electricity costs would

be around £54 million higher, based upon closing commodity prices

at 27 March 2022.

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 £4 million.

The Group is exposed to foreign currency exchange risk in

relationto interest payments on the €500 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 €550 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£1:€1.18 (2020-21: £1:€1.12). This resulted in a £16 million

decrease in GLS’ reported operating profit before tax in

2021-22 (2020-21: £7 million increase). The net impact on

Groupoperating profit before tax was a £16 million decrease

(2020-21: £7 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 £2,213 million (2020-21: £2,051 million) was

atfixed rates.

London Development Portfolio

The current year net cash inflows relating to the London

Development Portfolio were £99 million, consisting of receipts

of£111 million for Nine Elms, offset by the cost of enabling works

of£4 million at Mount Pleasant and £8 million at Nine Elms.

In total we have invested £12 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 £193.5 million (including £3.5 million non-cash

consideration). For accounting purposes, £39.5 million of the

proceeds were allocated to Phoenix Place and £154 million to

Calthorpe Street. £115 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 (£66 million)

and a final payment in 2024-25 (£9 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 £101 million

toGreystarReal Estate Partners, LLC.

 Plot C1 sale completed June 2019 for £22.2 million

toGalliardHomes.

 Plot A sale completed December 2020.

 Plots E, F and G sale completed January 2022 for

£111.2 millionto London Square Developments Ltd.

Further investment by Royal Mail will be required in relation

toinfrastructure obligations.

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

73

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 £8 million (28 March 2021: £9 million).

Further details of all the Group’s pension arrangements can

befound in Note 11 to the Consolidated Financial Statements.

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

£199 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.

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.£50 million perannum) and

flowthrough costs associated with the 1 hour shorter working

week, granted in the middle of 2021-22 (c.£40 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.£45 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 £350 million.

These include the benefits from our ongoing operational

management restructuring (£30 million saving in 2022-23 and

£40 million annualised, plus the non-recurrence of the £70 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.

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 £395 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 £400 million per year. The new RMCPP is expected to

increase cash pension costs by c.£30 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.

Defined benefit schemes – balance sheet position

An IAS 19 deficit of £390 million (2020-21: £394 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 £4,182 million (28 March

2021: £3,666 million). The pre-withholding tax accounting surplus

has increased by £516 million (28 March 2021: £1,884 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.

20. Includes £12 million insurance premium costs which are reported within wages and salary costs.

Strategic Report

Royal Mail plc

Annual Report and Financial Statements 2021-22

74

Financial Review continued

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 £303 million (as at

18 May2022)

21

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 €370 million – €410 million.

We believe the €500 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.

21. Based on company collated consensus for Royal Mail adjusted operating profit in FY 2022-23 of

£303m as at 18 May 2022; based on 10 analysts’ estimates, all received after 25 January 2022.

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

75

In accordance with sections 414CA and 414CB of the Companies Act 2006, the table below sets out where information can be found in this

Annual Report relating to non-financial matters, including our commitment and approach to responsibly managing our relationships with

our people, customers, communities and the environment. It also highlights, where relevant, the policies to support our performance in

these areas, how we monitor their effectiveness and their outcomes.

Environment

Material policies How we monitor effectiveness

Environment policy (Royal Mail)

Environmental Standard (GLS)

Outlines our commitments to responsible management of natural resources,

climate change mitigation and adaptation, pollution prevention and protection of

the environment. Includes engagement with our people, customers and suppliers.

 Measure performance against key environmental metrics.

 Monitor the scores and rankings in sustainability benchmarks and indices.

 Regular audits against our Environment management systems.

 Include environmental criteria in supplier selection frameworks and

monitor suppliers’ performance (Royal Mail).

 Board oversight of performance by the ESG Committee. Pages 107 to 109.

Outcomes Risk management

 Our environment strategies, approach and policy outcomes. Pages 32 and 33.

 Environmental performance against key metrics including carbon emissions

and waste generation (pages 33 to 35).

 The Board factors the impact of the Group’s operations on the community

andthe environment into its decision making. Page 28.

 Principal risk: Environment and sustainability. Page 59.

 Implementation of TCFD recommendations. Pages 46 to 51.

Employees

Material policies How we monitor effectiveness

Our Business Standards (Royal Mail)

Code of Business Standards (GLS)

Page 45.

People policy (Royal Mail)

A single policy statement which sets out our overarching commitment to

colleagues throughout their employment with Royal Mail.

Royal Mail and GLS Speak Up (Reporting) policies

Our commitments to investigating suspected wrongdoing, including the system

for raising concerns and our respect for whistleblower confidentiality.

Royal Mail and GLS Health and Safety policies

Our commitments to managing health and safety risks, removing or reducing

thelikelihood of injury or harm to its employees or others.

Group Equality and Fairness policy

Outlines our principles and approach to promoting equality, diversity and fairness

at all stages of employment.

Pag e 97.

 Monitor health and safety performance metrics and undertake regular

audits against our SHE management systems. Page 36.

 Regular employee engagement forums and surveys allow us to monitor

culture and engagement. Pages 26, 38, 84, 85 and 90.

 Track workforce diversity across job levels and different business areas

against targets. Page 40.

 Monitor the contact across our whistleblowing channels and investigate

concerns/incidents raised. Pages 45 and 85.

 Designated Non-Executive Director for engagement with the workforce.

Page 90.

 Board oversight of performance by the ESG Committee. Page 107 to 109.

Outcomes Risk management

 Our people strategies, approach and policy outcomes. Pages 38 to 41.

 Our health, safety and wellbeing performance. Page 36 to 38.

 Our gender diversity profile. Page 40.

 Feedback from employee engagement activities and surveys. Pages 26, 38, 84,

85 and 90.

 The Board factors the interests of our employees into its decision making. Page 29.

 Principal risks: Industrial action, Talent – workforce for the future and

Health, safety and wellbeing. Pages 58 and 61.

Social and community

Material policies How we monitor effectiveness

Group ESG policy statement

Page 45.

Responsible Procurement Code of Conduct (Royal Mail)

Supplier Code of Conduct (GLS)

Page 45.

 Annual research of our socio-economic impact in the UK to understand

thelevel of benefit we deliver to the communities we serve. Page 42.

 Monitor the scores and rankings in sustainability benchmarks and indices.

 Monitor customer feedback. Page 26.

 Monitor service performance. Page 26.

 Investigating breaches to our supplier codes, plus effective monitoring

andauditing of high-risk suppliers (Royal Mail).

 Monitor payment practices (Royal Mail).

 Board oversight of performance by the ESG Committee. Page 107 to 109.

Outcomes Risk management

 Our customer-centric strategy, service performance and customer feedback

scores. Pages 14 to 17 and page 26.

 Our community investment approach and policy outcomes including UK

socialand economic contribution. Page 42 and 43.

 Our supply chain approach and policy outcomes including monitoring of

suppliers (monitoring for Royal Mail only). Page 45.

 Payment practices, available at www.gov.uk/check-when-businesses-pay-

invoices (Royal Mail).

 The Board factors the interests of suppliers, customers and other stakeholders

into its decision making. Pages 28 and 29.

 Principal risks: Customer expectations and our responsiveness to market

changes, Our UK regulatory framework and Business continuity and

operational resilience. Pages 57, 59 and 60.

Strategic Report

Royal Mail plc

Annual Report and Financial Statements 2021-22

76

Non-Financial Information Statement

Respect for human rights

Material policies How we monitor effectiveness

Group ESG policy statement

Page 45.

Group Equality and Fairness policy

Pag e 97.

Recruitment Vetting policy (Royal Mail)

Sets out the policy for Right to Work and vetting checks for all roles within

RoyalMail Group to ensure that we meet our legal, regulatory and

contractualobligations.

Responsible Procurement Code of Conduct (Royal Mail)

Supplier Code of Conduct (GLS)

Page 45.

 Embed human rights risks into our compliance risk monitoring

programme.

 Monitor high-risk supplier categories for evidence of breaches to

ourstandards.

 Operate strict resourcing controls that govern the onboarding of new

permanent, temporary and contract staff to ensure compliance with

vettingstandards (Royal Mail).

 Board oversight and review of Modern Slavery Act Statement by the ESG

Committee. Page 109.

Outcomes Risk management

 Human rights approach and policy outcomes. Page 43.

 Number of high-risk suppliers signed up to Sedex. Page 45.

 Our risk management framework governs how we identify, assess and

manage such risks. The risk appetite determines the level of risk we are

prepared to accept. Pages 52 to 55.

 Our Modern Slavery Act Statement available at https://www.

royalmailgroup.com/media/11528/modern-slavery-statement-2020-21.pdf

Anti-bribery and corruption

Material policies How we monitor effectiveness

Policy for the Prevention of Bribery, Corruption and the Facilitation of Tax

Evasion (RoyalMail)

Anti-bribery Policy (GLS)

Page 45.

Our Business Standards (Royal Mail)

Code of Business Standards (GLS)

Page 45.

Responsible Procurement Code of Conduct (Royal Mail)

Supplier Code (GLS)

Page 45.

Royal Mail and GLS Speak Up (Reporting) policies

Page 45.

 Provision of mandatory compliance training for employees. Page 44.

 Require annual manager attestations to maintain our Royal Mail Business

Standards. Page 44.

 Country Manager attestations as part of Quarterly Compliance Reporting

(GLS).

 Regular screening of suppliers to check for instances of corruption.

 Monitoring the number of contacts made across our whistleblowing

channels. Page 85.

Outcomes Risk management

 Our approach to ethics and compliance and policy outcomes. Page 44 and 45.

 Completion rate of compliance training against target. Page 44.

Our risk management framework governs how we identify, assess and

manage such risks. The risk appetite determines the level of risk we are

prepared to accept. Pages 52 to 55.

Other non-financial information

Page

Our Business Model 12 and 13

Measuring Our Performance (non-financial KPIs) 24 and 25

ESG Review 30 to 45

Most of the policies and procedures referred to above are available at www.royalmailgroup.com/en/responsibility/policies-and-reports

and www.gls-group.eu/GROUP/en/about-us/our-code-of-conduct.

This Strategic Report was approved by the Board on 18 May 2022 and signed on its behalf by:

Keith Williams Mick Jeavons

Non-Executive Chair Group Chief Financial Officer

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

77

79 Chair’s introduction

81 Code application

82 Board of Directors

84 Board leadership and company purpose

91 Division of responsibilities

92 Composition, succession and evaluation

95 Nomination Committee Report

99 Audit and Risk Committee Report

107 Environmental, Social and Governance

Committee Report

110 Directors’ Remuneration Report

142 Directors’ Report

146 Statement of Directors’ Responsibilities

Corporate

Governance

Royal Mail plc

Annual Report and Financial Statements 2021-22

78

Corporate Governance

Dear Shareholder,

On behalf of the Board, I am pleased to present this year’s

Corporate Governance Report.

As explained in my letter on pages 4 and 5, we have continued

toface a number of challenges this year. Throughout the year,

theBoard has focused on a number of key priorities, which are

detailed in the adjacent column.

Purpose, culture and values

The importance and relevance of our purpose – connecting

customers, companies and countries – and the unique contribution

our businesses make to society, have been magnified during the

past two years. Our culture, which is shaped by our values, is a key

enabling factor in delivering our purpose and strategic ambitions.

To ensure that a trusting, inclusive and customer-focused

environment is in place across the Group, the Board continues

tomonitor and review the Group’s culture on a regular basis.

Seepages84 and 85.

Stakeholders

Our stakeholders are integral to the Group’s success, and

ourpurpose demonstrates the importance we place on

ourrelationships with them. To ensure that we understand

ourstakeholders’ views and interests, we engage with them

inanumber of ways (see pages 26 and 27). Our Directors’

dutiesunder section 172 of the Companies Act 2006 underpin

ourdecision-making processes. Our section 172 statement on

pages 28 and 29 includes examples of how the Board factored

stakeholder views and interests into decisions it made this year.

Environmental, social and governance

As highlighted on page 30 and 31, we have developed new Group-

wide ESG Principles which are built around the issues that are most

relevant to our stakeholders and our businesses.

Royal Mail has also updated its environmental 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. See pages 32 and 33.

Capital return

In the early days of the pandemic, the Board made the decision

tonot pay a final dividend for 2019-20 whilst the Company

determined the impact of the pandemic on its finances. With

morevisibility on the Group’s strategic progress and performance,

in November 2021 the Board reviewed the Group’s cash holdings.

Inline with our capital allocation policy, we decided cash was

available to return to shareholders and announced our intention

toreturn up to £400 million of cash to shareholders through a share

buyback programme and a special dividend. The special dividend

of20 pence per share was paid to shareholders alongside the

interim dividend on 12 January 2022 and the share buyback

programme was completed in March 2022.

Key priorities

 Ensuring the safety of our people and customers.

 Continuing to provide a vital frontline service to keep

ourcustomers, companies and countries connected.

 Monitoring the transformation of Royal Mail and the

execution of GLS’ Accelerate strategy.

 Overseeing implementation of the Group’s capital

allocationpolicy.

 Ensuring that despite different ways of working, the highest

levels of governance continue to operate across the Group,

including effective risk management measures and controls.

Keith Williams

Non-Executive Chair

Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

79

Strategic Report Corporate Governance

Chair’s Introduction

Board and Committee changes

There were two additions to the Board in the year. Martin Seidenberg,

CEO GLS, joined as an Executive Director on 1 April 2021, and

Shashi Verma joined as a Non-Executive Director on 29 September

2021. Shashi also joined the Nomination Committee and ESG

Committee. Biographical information about Martin and Shashi

isincluded on pages 82 and 83.

As announced on 1 February 2022, Rita Griffin has decided not to

seek re-appointment at our forthcoming AGM, which is scheduled

tobe held on 20 July 2022, and she will step down from the Board

atthe end of the meeting. 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.

Subject to her re-appointment to the Board at our forthcoming

AGM, Lynne will succeed Rita as Chair of the ESG Committee at the

conclusion of the AGM and, at the same time, step down as Chair

ofthe Remuneration Committee. Subject to her re-appointment

tothe Board at our forthcoming AGM, Maria da Cunha, who is an

existing member of the Remuneration Committee, will take over

from Lynne Peacock as Chair of this Committee at the conclusion

ofthe AGM. Maria will continue in her role as Designated Non-

Executive Director for engagement with the workforce.

Diversity and inclusion

To effectively fulfil our purpose and deliver long-term value for our

stakeholders, we must foster an inclusive culture, employpeople

with different viewpoints and promote diversity inits broadest

sense, including professional, educational, skills,age, gender

andethnicity. This approach enhances our decision making and

supports delivery of our strategy. Further information about our

current diversity profile and the steps we are taking to improve

thisare set outonpages40and41.

The composition of the Board aligns with the ambitions set by

theParker Review and the FTSE Women Leaders Review, as well

as those announced by the Financial Conduct Authority. As at

27 March 2022, the proportion of women onour Board was 40%.

However, when Rita Griffin leaves the Boardin July 2022, the

proportion of women on our Board will dropto 33%. Our ambition is

to further increase gender diversity on the Board, and the

Nomination Committee will consider the FTSE Women Leaders

recommendations and the FCA targets as part of its annual review

of the Board Diversity Policy this coming year.

Female colleagues continue to be under-represented in our

seniorleadership roles. During the year, recognising that we

needto accelerate our progress in this important area, we

introduced gender balanced shortlisting for all recruitment

intoourmost senior grades at Royal Mail (see page 97).

Also recognising that ethnic minority colleagues continue to be

under-represented in senior management roles, we introduced

ethnic diversity targets for Royal Mail (see page 40).

Board evaluation

To ensure that it sets the correct tone and continues to operate

effectively, we are committed to annually reviewing the Board’s

performance. Full details of the internal evaluation undertaken

inMarch 2022, including the methodology and key findings, are

setout on page 94. While the overall outcome of the evaluation was

positive, to ensure continuous improvement, the Board agreed that

a number of actions should be implemented (see page 94).

Compliance with the 2018 UK Corporate Governance Code

1

(theCode)

The Board confirms that for the year ended 27 March 2022 the

Company complied with all relevant Provisions in the Code.

Thisgovernance section explains how we have applied the

Code’sPrinciples during the year.

Conclusion

I hope that you find this report useful and I look forward to

engagingwith shareholders at our forthcoming AGM.

Keith Williams

Non-Executive Chair

18 May 2022

1. The Code is available at www.frc.org.uk.

Royal Mail plc

Annual Report and Financial Statements 2021-22

80

Corporate Governance

Chair’s Introduction continued

Information about how we have applied the Code’s Principles during the year ended

27 March 2022 can be found as indicated below.

Code Principle

Page

1. Board leadership and company purpose

A. Effective leadership, promotion of long-term success, value generation and social contribution 28 and 29

82 to 86

B. Purpose, values, strategy and cultural alignment 2

14 to 23

84 and 85

C. Resources and controls 52 to 61

87 and 88

105

D. Stakeholder engagement 26 to 29

90

E. Policies and practices and mechanisms to raise workforce concerns 44 and 45

90

2. Division of responsibility

F. Role of the Chair 91

94

G. Composition of the Board 91 and 92

H. Role and time commitment of the Non-Executive Directors 91

98

I. Effective and efficient Board 91

3. Composition, succession and evaluation

J. Appointments to the Board and succession planning 96 to 98

K. Skills, experience and knowledge of the Board 82 and 83

95

L. Board evaluation 94

4. Audit, risk and internal control

M. Internal and external audit 104

106

N. Fair, balanced and understandable 146

O. Risk management and internal control framework 52 to 55

105

5. Remuneration

P. Remuneration policies and practices 115

Q. Executive remuneration 126 to 141

R. Remuneration outcomes and independent judgement 110 to 113

Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

81

Strategic Report Corporate Governance

Application of Code Principles

Keith Williams

N

R

Independent Non-Executive Chair

Appointed to the Board

Non-Executive Director on 1 January 2018

Non-Executive Deputy Chair on 7 November 2018

Non-Executive Chair on 22 May 2019

Interim Executive Chair on 15 May 2020

Non-Executive Chair on 1 February 2021

Skills and experience

 Proven business leader with significant chair and

board leadership experience. Keith spent 18 years

atBritish Airways, including five years as CFO,

threeyears as CEO and two years as Executive

Chair,during which time he led the transformation

ofBritish Airways. Formerly a Non-Executive

Director and Deputy Chairman of the John Lewis

Partnership, a Non-Executive Director of Aviva plc

and an Executive Board member and Chair of the

Audit Committee at Transport for London.

 Extensive industrial relations, operational

andcustomer service experience.

 Chartered accountant.

Significant external appointments

 Chair of Halfords Group plc

Simon Thompson

Chief Executive Officer of Royal Mail

Appointed to the Board

Non-Executive Director on 1 November 2017

Chief Executive Officer of Royal Mail on 11 January 2021

Skills and experience

 Extensive experience as a global business leader.

 Proven track record in delivering digital

transformation and enhanced customer experience.

Simon has held senior positions at HSBC, Ocado plc,

Honda Motor Europe Ltd, Motorola Inc,

lastminute.com, Apple Inc. and Wm Morrison

Supermarkets plc.

 Former Royal Mail Designated Non-Executive

Director for workforce engagement.

Significant external appointments

 Member of the Digital Advisory Board of Coca Cola

Europacific Partners

Martin Seidenberg

Chief Executive Officer of GLS

Appointed to the Board

1 April 2021

Skills and experience

 Significant international and logistics experience.

Martin spent 15 years with Deutsche Post DHL in

avariety of senior logistics, parcel-related and

strategic roles including CEO of the DACH region

atDHL Supply Chain.

 Deep knowledge of GLS, having joined in 2015

asChairman of GLS Germany, becoming GLS Group

CEO in June 2020.

Significant external appointments

 None

Rita Griffin

E

N

Independent Non-Executive Director

Appointed to the Board

1 December 2016

Skills and experience

 Significant experience in developing and

implementing strategies and leading substantial

transformation programmes. During her long

careerat BP plc, Rita held various roles including

Vice President of Downstream Transformation and

Chief Operating Officer of Global Petrochemicals.

Significant external appointments

 None

Maria da Cunha

E

N

R

Independent Non-Executive Director

Designated Non-Executive Director

forengagementwith the workforce

Subject to her re-appointment at the AGM, Maria will

become Chair of the Remuneration Committee at the

conclusion of the AGM.

Appointed to the Board

22 May 2019

Skills and experience

 Extensive experience in industrial relations,

transformation programmes and employee

engagement gained through her 18-year career

atBritish Airways, where Maria was the Director

ofPeople, Legal and Government and Industry

Affairs, and the Director of People and Legal.

 Qualified solicitor with significant risk, compliance

and legal knowledge, having held various positions

with Hogan Lovells, Lloyds of London and Law

College of Europe.

Significant external appointments

 Non-Executive Director of De La Rue plc

 Panel Member of the Competition and

MarketsAuthority

Michael Findlay

A

N

R

Independent Non-Executive Director

Appointed to the Board

22 May 2019

Skills and experience

 Extensive strategy, finance and M&A experience.

Michael spent 27 years in investment banking at

Robert Fleming & Co, UBS and most recently Bank

ofAmerica Merrill Lynch, where he was Co-Head

ofInvestment Banking and Corporate Broking

forthe UK and Ireland.

 Significant knowledge of the letters and parcel

sector. He is a former Non-Executive Director of

UKMail Group plc, where he was also the Senior

Independent Director, Chair of the Remuneration

Committee and a member of the Audit Committee.

Significant external appointments

 Chair of Morgan Sindall Group plc

 Chair of London Stock Exchange plc (a subsidiary

ofLondon Stock Exchange Group plc)

Royal Mail plc

Annual Report and Financial Statements 2021-22

82

Corporate Governance

Board of Directors

Committee membership key

A

Audit and Risk

E

ESG

N

Nomination

R

Remuneration

Committee Chair

Mick Jeavons

Group Chief Financial Officer

Appointed to the Board

11 January 2021

Skills and experience

 Significant financial, logistics and industrial

relations experience. Mick joined Royal Mail in

1993and has held various senior roles, including

Corporate Finance Director at the time of the IPO

in2013 and Chief of Staff to the then CEO.

 Chartered accountant.

Significant external appointments

 None

Baroness Hogg

A

E

N

Senior Independent Non-Executive Director

Appointed to the Board

1 October 2019

Skills and experience

 Extensive board and governance experience,

havingserved as Chair of 3i Group plc and as

aNon-Executive Director of several companies,

including BG Group and GKN plc. Baroness Hogg

won the Sunday Times Lifetime Achievement Award

for Non-Executive Directors in 2017.

 Significant political and regulatory experience

through her former roles as Lead Independent

Non-Executive Director of HM Treasury, Chair of the

Financial Reporting Council and Head of the Prime

Minister’s Policy Unit under John Major. She was

granted a life peerage in 1995 and sits in the House

of Lords as a crossbencher.

Significant external appointments

 None

Lynne Peacock

R

A

E

N

Independent Non-Executive Director

Subject to her re-appointment at the AGM, at the

conclusion of the meeting, Lynne will cease to serve as

Chair of the Remuneration Committee, but will continue

to serve as a member of that Committee. At the same

time, she will become Chair of the ESG Committee.

Appointed to the Board

1 November 2019

Skills and experience

 Significant board and executive experience, having

served as the CEO of National Australia Bank Europe

Limited (NAB) and the CEO of Woolwich plc. Lynne

was formerly a Non-Executive Director at Standard

Life Aberdeen plc, Scottish Water, Jardine Lloyd

Thompson Group plc and Nationwide Building Society.

 Transactional experience gained through her

involvement in Woolwich plc’s IPO and FTSE 100

listing and its sale to Barclays, the disinvestment

ofNAB’s Irish operations and the integration of

Clydesdale and Yorkshire Banks.

Significant external appointments

 Senior Independent Director of Serco Group plc

 Non-Executive Director of TSB Banking Group plc

 Senior Independent Director of TSB Bank plc

(asubsidiary of TSB Banking Group plc)

Shashi Verma

E

N

Independent Non-Executive Director

Appointed to the Board

29 September 2021

Skills and experience

 Proven business leader with extensive experience

indeveloping innovative technology. Shashi is

currently the Director of Strategy and Chief

Technology Officer at Transport for London (TfL),

arole in which he is responsible for the operation

ofTfL’s revenue collection system. He also led the

development and implementation of contactless

payments on TfL’s systems.

 Significant customer service experience gained

through his responsibility for integrating TfL’s

customer-facing activities and for running its

customer service operations.

Significant external appointments

 None

Mark Amsden

Group General Counsel and Company Secretary

Appointed

8 April 2019

Skills and experience

 Significant legal and company secretarial

experience. Mark was the former General

Counseland Company Secretary of Wm Morrison

Supermarkets plc and the interim Company

Secretary of Yorkshire Water. Formerly a partner

atAddleshaw Goddard LLP, where he specialised

incorporate litigation and headed up the national

ITlitigation practice.

 Data and technological experience. Mark helped

oversee Morrisons move online with Ocado and

thenAmazon, and dealt with the response to

Morrisons’ employee data theft in 2014.

Significant external appointments

 None

Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

83

Strategic Report Corporate Governance

An effective Board

As outlined on pages 82, 83 and 88, our Directors have proven capabilities and the right balance of skills and expertise to oversee the

delivery of the Group’s strategy and its long-term success. In particular, their different backgrounds and experience ensure diversity

ofthought, constructive debate, due consideration of all relevant stakeholders and an effective decision-making process.

Purpose, values and culture

If we are to achieve long-term success, it is essential that our culture, and the values which shape it, are aligned with our purpose and

strategy. We aim to foster a trusting and inclusive culture. In addition, given our societal role and the strategic importance of strong

customer relations, it is vital that customer-centricity underpins everything we do. The Board endorses the Royal Mail and GLS values

which are described on page 2 and regularly monitors the Group’s culture using several mechanisms as detailed below.

How the Board and/or its Committees monitored and assessed culture during the year

Activity Insight gained Outcome

Board reviewed feedback

from employee surveys

Valuable information about the issues that matter

toourpeople (see page 38).

Deepened understanding of the working environment across

the Group and the effectiveness of embedding our values in

everything we do.

Understood how the survey feedback translates into local action

plans, leading in turn to improved working environments.

Enabled the Board to assess implementation of the

Group’sstrategy from an employee perspective.

Assisted the Board in monitoring the progress of initiatives

toimprove relationships with our people and unions, and

rebuildtrust.

Feedback from our people about customer reaction to new

products and service quality taken into account as part of

the Board and Management’s review of Royal Mail’s new

product offerings and plans to improve customer service.

Board considered regular

updates from the

Designated Non-Executive

Director forengagement

with theworkforce

Direct and immediate feedback from our people and an

opportunity to see our operations first-hand. Observations

arising from dialogue this year included clear evidence of a

cohesive and strong culture across GLS and a committed

workforce in Royal Mail. Within Royal Mail colleagues again

expressed concerns about havingthe right tools to do the job.

In response to previous concerns around Royal Mail

colleagues having the right tools for the job, almost 80,000

new personal digital devices were rolled out. There is still

some work to be done to enable our people to provide a

great service and we will explore ways to do so in the

coming year.

Health, safety and

wellbeingupdates reviewed

at every ESG Committee

andBoardmeeting

Key information about our health and safety performance

which identified a need to improve accident rates and health

and safety awareness across the GLS business and improve

the health and safety culture across the Royal Mail business.

Details of infection and absence rates as a result of the

pandemic and the effectiveness of the controls put in place

inresponse to the pandemic.

Discussed and monitored the roll out of the awareness

andtraining programme to improve safety across the

GLSbusiness (see page 37).

Discussed initiatives to improve health and safety culture

across the Royal Mail business, including moving to a culture

of reporting near misses, appointing a dedicated Health and

Safety leader, reviewing 10% of safety assessments for

postie walks each month, and providing the Board and Royal

Mail Executive Board with health and safety training to

ensure awareness of their responsibilities.

Considered level of pandemic-related absences in

discussions about Royal Mail service quality issues in

January andFebruary 2022, along with ways to address

them.

Board level ongoing monitoring and review to ensure that

effective health and safety processes and procedures

arein place.

Royal Mail plc

Annual Report and Financial Statements 2021-22

84

Corporate Governance

Board Leadership and Company Purpose

Activity Insight gained Outcome

ESG Committee reviewed

Royal Mail absence levels

Information on frontline absence rates for the year to date with

acomparison against prior year and pre-pandemic levels,

which identified a need to reduce absence levels.

Information on the split of long-term and short-term

absenceand what the leading causes are for each.

The scale of pandemic-related absence levels.

In relation to long-term sickness, the effectiveness of actions

taken to support people coming back into the workforce.

Discussed initiatives to drive a reduction in sickness-

related absences including launching a taskforce to look

atshort-term absence and launching a communications

campaign to increase awareness of the support available

for employees.

ESG Committee reviewed

Royal Mail frontline

employee turnover

andthefindings of

anewexit survey

Information on employee turnover in 2021-22 including

therate of employees who had left within one year and a

comparison against pre-pandemic levels. The exit survey

provided a deeper understanding of why people are leaving us,

particularly in areas where the workforce is under-

represented such as female, minority ethnic and younger

colleagues, and identified three themes focused on

relationships with management, job expectations and working

hours.

Reviewed and discussed a range of initiatives to increase

employee retention including improving the onboarding

process, the role of workplace coaches and working with

hiring managers to ensure that recruitment levels are in

line with business needs and to monitor the hours worked

compared with the contracted hours of new entrants.

Royal Mail whistleblowing

reports reviewed at

ESGCommittee

orARCmeetings

Information on the total number of whistleblowing reports

beingregistered on a quarterly basis, which rose above the

UKbenchmark for the first time, suggesting an increase in

trustinthe process and the drive from within the business

fromthetop down to an open and transparent culture.

Information on the anonymous reporting rates, which

haddecreased and was at the lowest rate since 2019 but

remained high overall, suggesting fears around retaliation

andconfidentiality remain.

Updates on key cases and actions being taken to address

issuesraised.

Considered initiatives to reduce anonymous reporting

andbuild greater trust in the whistleblowing process,

including publishing more redacted case studies and

implementing and publicising an anti-retaliation process.

Reviewed proposals to proactively monitor the timeliness

ofinvestigations and their escalation and plans to increase

resources to reduce the time taken to review reports prior

totheir closure.

Royal Mail and GLS

whistleblowing processes

reviewed by the ARC and

theBoard

The end-to-end process of Royal Mail and GLS’ whistleblowing

process, which demonstrate that both businesses operate a

robust and effective process that enable our workforce to raise

issues of concern.

Content of whistleblowing reports for Royal Mail and GLS.

Considered minor improvements to enhance Royal Mail’s

whistleblowing process including introducing performance

measures into different elements of the whistleblowing

process inthe coming year to track timeliness of dealing

with issues raised.

The ARC and the Board will continue to monitor the

effectiveness of the whistleblowing processes on a

bi-annualbasis.

Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

85

Strategic Report Corporate Governance

Nomination

Committee

Committee Chair:

Keith Williams

 Reviews the balance and

composition of the Board and

its Committees including in

relation to skills, knowledge,

independence, diversity

andexperience.

 Ensures a progressive

renewal of Board

membership through orderly

succession planning.

 Considers talent reviews and

succession planning for

senior executives.

 Oversees progress against

the Group’s diversity policy.

See pages 95 to 98.

Audit and Risk

Committee

Committee Chair:

Michael Findlay

 Reviews, and recommends

for the Board’s approval, all

Financial Statements and

associated disclosures.

 Advises the Board on the

Group’s overall risk appetite,

tolerance and strategy, and

reviews the policies and

processes for identifying and

assessing the risks to which

the Group is exposed and the

management of those risks.

 Satisfies itself that internal

controls and risk

management processes

generally work effectively,

including the Group’s

whistleblowing

arrangements.

 Oversees the financial

performance of the Group.

 Oversees the relationship

with the external auditor,

ensuring the effectiveness of

the external audit process.

See pages 99 to 106.

Remuneration

Committee

Committee Chair:

Lynne Peacock

 Determines, and

recommends for the Board’s

approval, the framework for

the remuneration of the

Group’s senior executives.

 Determines and recommends

for the Board’s approval the

individual remuneration

arrangements for the Chair,

the Executive Directors, the

Executive Board of Royal Mail

and GLS and the Company

Secretary.

 Agrees targets for any

performance-related

incentive schemes.

See pages 110 to 141.

Environmental, Social and

Governance Committee

Committee Chair:

Rita Griffin

 Oversees the Group’s

performance in relation to

ESG matters and standards

to ensure that they are

inalignment with the

Groupstrategy.

 Reviews, and recommends

for the Board’s approval,

theGroup’s ESG policies

andpractices.

 Focuses its efforts on the

ESG issues that are of most

importance to the Group and

its stakeholders and remains

attuned to the changing

needs and expectations

ofsociety.

 Monitors and reviews

theGroup’s culture.

 Monitors and reviews health

and safety and wellbeing

arrangements.

 Monitors and reviews the

Group’s community efforts

and its help for vulnerable

customers.

See pages 107 to 109.

Governance framework

Our governance framework, which is set out below, assists us in the exercise of our duties and responsibilities, including setting

andmonitoring the Group’s strategic direction and creating long-term value for our shareholders and other stakeholders.

Governance framework

The Board

 Responsible for the stewardship of the Group and its long-termsuccess.

 Sets the Group’s values and standards, making sure that they align with

its strategic aims and the desired business culture.

 Oversees and has accountability for stakeholders’ interests.

 Sets the objectives and strategy, and monitors performance and

riskmanagement.

 Approves major contracts, investments, internal controls and

keypolicies.

Matters reserved for the Board’s approval are available at www.royalmailgroup.com/en/about-us/governance.

The responsibilities the Board has delegated to its Committees are available at https://www.royalmailgroup.com/en/about-us/management-and-committees.

Board and Committee agendas

The Board’s annual plan is designed to ensure that enough time is allocated to address all necessary matters, and meeting agendas are adjusted to

prioritise relevant issues and ensure focused consideration of strategic priorities.

Committee meeting agendas are informed by a forward planner which is developed from each Committee’s Terms of Reference and reviewed and

updated regularly to reflect areas identified by Committee members for additional focus.

Royal Mail plc

Annual Report and Financial Statements 2021-22

86

Corporate Governance

Board Leadership and Company Purpose continued

Board meetings and attendance

The Board met on nine scheduled occasions during the year

inaddition to a number of ad hoc meetings. Each Director

hascommitted to attending all scheduled Board meetings and

would only fail to do so in exceptional circumstances. Similarly,

everyeffort is made by Directors to attend ad hoc meetings. On

therare occasion that a Director cannot attend a meeting, they are

provided with the papers in advance of the meeting and are given

the opportunity to provide comments to the Chair. The table below

shows the number of scheduled Board meetings each Director

attended and the number of meetings they were entitled to attend

during the year ended 27 March 2022. As pandemic restrictions

eased during the year, Board meetings were held in person where

appropriate and possible in accordance with guidance at the time.

Whilst the Board welcomes the return of physical meetings, it is

keen to continue to harness the benefits of virtual meetings and

willcontinue to invite some colleagues to present virtually and

willalso hold Committee meetings virtually where appropriate.

Governance at a glance

The Non-Executive Directors and the Chair meet regularly without

the Executive Directors present. These meetings are an important

way to develop working relationships between the Non-Executive

Directors and to assess the performance of Senior Management.

The Non-Executive Directors also meet regularly with Senior

Management, and spend time increasing their understanding of

thebusiness. These meetings also enable Senior Management to

benefit from the Non-Executive Director skill set and experience.

These meetings help to ‘open out’ discussions, enabling formal

Board meetings to be more focused. It also helps the Non-

Executive Directors recognise that attendance at Board

meetingsisonly one part of their role.

Board activities

The specific areas the Board focused on during the year and up

until18 May 2022 are outlined on pages 88 and 89. Inaddition, at

every Board meeting a number of standing items arereviewed,

including health and safety and wellbeing reports, customer

service, regulatory updates and market developments. At each

Board attendance

Director Joined

Attendance

(scheduled

meetings)

Keith Williams Chair

9/9

Baroness Hogg Senior Independent Director (SID)

9/9

Rita Griffin Non-Executive Director

9/9

Michael Findlay Non-Executive Director

9/9

Maria da Cunha Non-Executive Director

9/9

Lynne Peacock Non-Executive Director

9/9

Shashi Verma

1

Non-Executive Director

5/5

Mick Jeavons Group Chief FinancialOfficer

9/9

Simon Thompson CEO of Royal Mail

9/9

Martin Seidenberg CEO of GLS

9/9

1. Shashi Verma joined the Board as a Non-Executive Director on 29 September 2021.

Board meeting, Committee Chairs update the Board onthe recent

work of their Committee. Individuals from relevant business areas,

as appropriate, present on key items, which enables the Board to

debate and challenge Management’s proposed initiatives and plans

and meet key individuals from the businesses. During theyear, over

60 Royal Mail and GLS Senior Managers presented at or attended

one or more Board or Committee meetings.

Effectiveness of risk management and internal control

The Board has overall accountability for the Group’s risk

management and internal control systems and has delegated

totheARC a number of activities, including objectives related

toriskcontrol, governance, financial control and statutory

reporting. Information about the ARC’s activities is included

onpages 99 to106.

During the year, the Board reviewed the Group’s risk management

and internal control systems, covering all material controls

including financial, operational and compliance controls, and

determined they were generally effective in the year. The Board

also considered recommendations from the ARC to improve the

effectiveness of the control environment in light of the increasing

global risk facing the business as it transforms. See page 105 for

further information of the key activities underway.

The Board also determined the Group’s risk appetite andcarried

out a robust assessment of the Group’s principal andemerging

risks. Information about the Group’s principal risksisincluded on

pages 56 to 61.

Conflicts of interest

The Group operates a policy to identify and, where appropriate,

manage Directors’ potential conflicts of interest. Any potential

conflict must be notified to and authorised by the Board. Each

Director abstains from approving their own potential conflicts.

Directors also have an ongoing obligation to advise the Board

ofany related party transactions involving themselves or their

connected persons, and that these are conducted on an arm’s

length basis.

Board composition

3

Executive Directors 3

Independent

Non-Executive Directors

6

Non-Executive Chair

1

6

1

Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

87

Strategic Report Corporate Governance

Board activities

Matter considered Activity

Strategy and business plan

Strategy  Dedicated a significant amount of time to discussing, monitoring and reviewing the implementation

ofRoyal Mail and GLS’ respective strategies, including participating in a dedicated strategy day.

 Considered and approved GLS’ acquisition of Rosenau Transport.

 Reviewed and the approved the GLS medium and longer-term strategy plans and GLS Accelerate.

 Discussed and reviewed the implementation of Royal Mail’s transformation programme and approved

proposals to further streamline operational management to improve performance atlocal levels.

 Received updates on Royal Mail’s pricing strategy.

Business plans  Reviewed and approved business plans and budgets.

 Monitored progress against the annual budgets and the Group’s financial targets.

 Considered and approved the capital allocation framework.

COVID-19  Received regular COVID-19 updates, including impact assessments, contingency plans and the

measures being deployed to protect the Group’s workforce and customers.

Leadership

Board composition and

succession planning

 Considered and approved the appointment of Shashi Verma as a new Non-Executive Director.

 Continued to consider Board membership, including Board succession planning and Committee

composition, with a focus on diversity and ethnicity.

 Considered and approved changes to membership of the Remuneration and ESG Committees.

 Received updates on the talent work conducted by Korn Ferry (see page 96).

Organisational change  Considered and approved a corporate restructure to reflect the new Group management structure.

Board gender balance

6

Male 6

Female

4

4

Board ethnicity

9

White 9

Indian

1

1

Board tenure

3

0-2 years 3

2-5 years

6

5+ years

1

6

1

Board key skills and experience

6

Industrial relations/

employee engagement

6

Customer

5

Transformation

3

Finance

3

Regulated industries

8

Corporate governance

7

Audit, risk management

andcompliance

7

5

3

3

8

7

7

Royal Mail plc

Annual Report and Financial Statements 2021-22

88

Corporate Governance

Board Leadership and Company Purpose continued

Board activities continued

Matter considered Activity

ESG  Reviewed and approved the Group’s ESG Principles (see page 31).

 Discussed and reviewed the Group’s culture (see page 84 and 85) including the role to be played

bytheESG Committee in monitoring culture.

 Approved the 2020-21 Corporate Responsibility Report.

 Undertook in-depth review of Royal Mail diversity, equality and inclusion programmes and

associated targets.

Stakeholders  Regularly reviewed the Directors’ section 172 duties and responsibilities.

 Considered the feedback from employee surveys and oversaw the development of an action plan

toaddress several issues (see page 84).

 Considered reports covering employee feedback provided by the Designated Non-Executive

Director for engagement with the workforce and from the Chair of the ESG Committee.

 Received regular updates on shareholder sentiment and the Group’s investor relations programme.

 Received regular updates on discussions with unions and the industrial relations environment.

 Reviewed regular updates including updates in relation to Management’s engagement with Ofcom

about the Universal Service Obligation, and Ofcom’s regulatory review.

Operational  Reviewed and discussed operating performance reports prepared by the CEOs of Royal Mail

andGLS, including the impacts arising from the war in Ukraine.

 Received updates on aspects of the Group’s property portfolio.

 Reviewed and discussed Royal Mail’s plan for the Christmas peak.

Financial

Performance  Regularly discussed and considered the Group’s financial performance.

 Regularly reviewed the cost-control initiatives being implemented across the Group.

Dividend  Reviewed the dividend and capital allocation policies, taking into account the continued pandemic.

 Considered and approved the decision to pay an interim and final dividend for 2021-22.

 Considered and approved the decision to pay a special dividend.

Share buyback  Reviewed and approved a £200 million share buyback programme.

Reporting  Considered and approved full-year results, interim results and trading updates.

 Considered and approved this Annual Report, including the going concern and viability statements

on page 63.

Risk and internal controls

Health and safety  Received regular updates on health, safety and wellbeing matters, including absence levels.

Principal and emerging risks  Received regular updates on the Group’s principal and emerging risks.

 Considered and reset the Group’s risk appetite position.

Cyber security  Received updates on cyber security and the associated risks, including in relation to operational technology.

 Participated in cyber security training.

Whistleblowing  Reviewed reports in relation to the whistleblowing helplines.

Governance  Considered findings of the Board evaluation and agreed actions to improve and enhance a number

of areas (see page 94).

 Reviewed and approved changes to the Matters Reserved for the Board and the Committees’ Terms

of Reference.

 Reviewed and approved, upon recommendation from the relevant Committee (where appropriate),

the Group’s Modern Slavery Act Statement, Treasury Policy, Anti-bribery and Corruption Policy, the

Board’s Diversity Policy and the ESG Policy.

Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

89

Strategic Report Corporate Governance

The Board’s engagement with stakeholders

To deliver our strategy and create long-term sustainable value,

weneed to build constructive relationships with our stakeholders.

By understanding their issues and concerns, we can factor their

views into our Boardroom discussions to help drive our long-term

success as well as assess the potential impact our decisions have

on our various stakeholders.

Our stakeholders and the channels we use to engage with them

aredescribed on pages 26 and 27. Our section 172 statement ison

pages 28 and 29 together with examples of principal decisions and

how the Board considered the section 172 matters.

Workforce engagement

Many of the decisions we make could impact our colleagues and it

is therefore important that we engage with them and understand

their views. As our people are pivotal to our long-term success, it

isalso important that they understand our strategy and objectives

and have an opportunity to share their insights, particularly about

our customers who they engage with daily.

Ordinarily the Board visits at least one operational site a year;

however, as a result of the pandemic, the Board was unable to

undertake any visits during the year and several planned visits

were cancelled due to the pandemic. It is hoped thatsite visits

willresume later this year. Maria da Cunha is the Designated

Non-Executive Director for engagement with the workforce

andhas held this role since January 2021. While the continued

pandemic has prevented travel to GLS’ operations, Maria has

heldfive virtual Employee Voice Forums with GLS colleagues,

andseven face-to-face Employee Voice Forums with Royal Mail

colleagues. Colleagues from operational and central functions,

including delivery, fleet and engineering, property and facility

solutions andour Parcelforce business participated in these

forums. Mariasubmits a periodic writtenreport to the Board

covering keyobservations and themesarising from her discussions.

Engagement with customers

Our customers rely on the service we provide, and it is therefore

important that we engage with them about any decisions that

willimpact them. As we seek to ensure that the Universal Service

stays relevant and sustainable, the Board felt it was appropriate

togather feedback on Royal Mail’s proposals from its customers

via consumer roadshow events, which were held from January

toMarch 2022. The findings were then shared with Ofcom.

Engagement with Regulator

We have regular contact with Ofcom (see page 27). We are

participating in its current Review of Postal Regulation and we have

called for tracking on USO services. This is a subject that the Board

regularly discusses and feels strongly about, particularly in light of

customer demand for more visibility. As part of our recent

response to Ofcom consultations, we have put in a detailed,

evidence based submission demonstrating the importance of

allowing tracking in the USO, supporting better customer

outcomes.

Engagement with investors

We operate a comprehensive investor relations programme. The

Director of Investor Relations, John Crosse, provides a monthly

report to the Board which covers feedback from this programme

and updates on the investor landscape. Our corporate brokers also

provide updates to the Board as required.

Keith Williams and, separately, Mick Jeavons and John Crosse, met

with major shareholders to understand their views on governance

and performance against strategy. The AGM is a key forum for the

Board to engage with shareholders. After holding a closed meeting

for our AGM in 2020, we had hoped to welcome shareholders in

person to our 2021 AGM, but unfortunately in light of the

uncertainty around restrictions on social contact, we strongly

encouraged shareholders not to attend the AGM in person but

instead to attend and participate electronically. Further, following a

positive COVID-19 test result by an employee at the proposed venue,

the Board decided, in the interests of health and wellbeing, that only

a limited number of Company representatives should attend.

Accordingly, other than the Chair, Group CFO and the CEO of Royal

Mail, who attended in person, all Directors participated in the

meeting virtually. Reflecting our commitment to constructive

engagement, shareholders were invited to submit questions in

advance of the meeting, in person or via a virtual platform during

the meeting. We responded toany questions not answered at the

AGM via email after the meeting. In general, those were questions

specific to that shareholder, not questions of wider shareholder

interest. We look forward to welcoming shareholders in person at

our forthcoming AGM.

Royal Mail plc

Annual Report and Financial Statements 2021-22

90

Corporate Governance

Board Leadership and Company Purpose continued

Chair

 Responsible for the leadership and management of the Board

andforpromoting high ethical and governance standards.

 Ensures an effective and complementary Board, including appropriate

contribution and sufficient challenge from the Directors.

 Ensures that the Board determines the nature and extent of the significant

risksthat the Group is willing to accept in implementing its strategy.

 With support from the Company Secretary, promotes the highest standards

incorporate governance and provides all new Directors with a thorough

andtailored induction programme.

 Ensures effective relationships exist between all Directors, driving a culture

that supports constructive discussion, challenge and debate.

 Maintains effective communications with shareholders, ensuring that their

views are understood and considered appropriately during Board discussions.

Senior Independent Director

 Acts as a sounding board for the Chair and serves as a trusted intermediary

for the other Directors.

 Leads the annual appraisal of the Chair’s performance.

 Available to meet with shareholders, should they have issues or concerns.

Independent Non-Executive Directors

 Responsible for contributing sound judgement and objectivity to the Board’s

deliberations and overall decision-making process.

 Provide constructive challenge and monitor the Executive Directors’ delivery

of the strategy within the Board’s risk and governance structure.

 Provide independent insight and support based on relevant experience.

 Satisfy themselves of the integrity of financial information and of the

effectiveness of financial controls and risk management systems.

 Determine the appropriate level of remuneration for Executive Directors

andensure that there is appropriate succession planning in place at both

Executive and Board level.

 Engage with internal and external stakeholders and feedback insights

astotheir views in relation to Group culture.

Designated Non-Executive Director forengagement with the workforce

 Represents the Board in engagement with the workforce.

 Develops a thorough understanding of the workforce’s views and the

Groupculture.

 Develops, implements and feeds back on employee engagement initiatives

inconjunction with Management.

 Provides an employee voice in the Boardroom by raising relevant matters on

issues raised.

 Communicates to the workforce the outcomes and developments made by

the Board on specific matters.

Group Chief Financial Officer

 Responsible for providing strategic financial leadership of the Group and the

day-to-day management of the Group finance function.

 Develops and monitors the control systems designed to preserve Group

assets and report accurate financial results.

 Ensures commercial focus across all business activities.

 Supports and advises the CEOs and CFOs of both Royal Mail and GLS.

 Oversees the Group’s treasury, investor relations, tax and pension

arrangements and monitors regulation.

 Provides advice to Board members, particularly in relation to corporate

governance practices, induction training and personal development.

 Ensures that Board procedures are complied with, applicable rules are

followed and that good information flows exist to the Board and between

itsCommittees.

 Communicates with shareholders as appropriate and ensures that due

regardis paid to their interests.

 Ensures that the Board has high-quality information, adequate time and

appropriate resources in order to function effectively and efficiently.

 Considers Board effectiveness in conjunction with the Chair and provides

support to the Chair as required.

 Considers the appropriateness of risk management.

 Otherwise overviews the policies needed across the Group, to keep it safe,

legal and compliant.

Chief Executive Officer – Royal Mail

 Responsible for the executive leadership and day-to-day management

ofRoyal Mail.

 Leads the Royal Mail Executive Board.

 Responsible for implementing the delivery of the Royal Mail strategy and

commercial objectives as agreed by the Board and in accordance with the

Group’s risk appetite and business plans.

 Responsible for promoting Royal Mail’s culture, values and behaviours

andengagement with employees and key stakeholders.

 Provides support to the Chairman and Group CFO with

shareholderrelationships.

Chief Executive Officer – GLS

 Responsible for the executive leadership and day-to-day management

ofGLS.

 Leads the GLS Executive Board.

 Responsible for implementing the delivery of the GLS strategy and

commercial objectives as agreed by the Board and in accordance with

theGroup’s risk appetite and business plans.

 Responsible for promoting GLS’ culture, values and behaviours and

engagement with employees and key stakeholders.

 Provides support to the Chairman and Group CFO with

shareholderrelationships.

The role of each Director, which is summarised below, ensures a clear division of responsibility between executive and non-executive

Board members, which supports the integrity of the Board’s operations.

Non-Executive

Executive

Company Secretary

Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

91

Strategic Report Corporate Governance

Division of Responsibilities

Board composition

The delivery of the Group’s strategy and long-term success

depends on attracting and retaining the right skills across the

Group. This starts with the Board. The Board comprises six

independent Non-Executive Directors, an independent Non-

Executive Chair and three Executive Directors. They have wide-

ranging backgrounds and relevant and complementary skills

andexperience. Biographical information for each Director

isincludedon pages 82 and 83.

Board appointments

The Nomination Committee leads the process for Board

appointments and seeks to construct an effective, robust, well-

balanced and complementary Board, with the appropriate balance

of skills, experience, independence and knowledge of the Group to

enable duties and responsibilities to be discharged appropriately.

The Board and the Nomination Committee actively consider the

structure, size and composition of the Board and its Committees

when considering new appointments and succession planning.

They also take account of a range of diversity factors together with

the need to balance the composition of the Board and Committees

and refresh them over time to meet the changing needs of the

Group. Further details on the Nomination Committee’s work in

thisarea are included on pages 95 to 96.

Board terms of appointment

Copies of the Executive Directors’ service contracts and the

Non-Executive Directors’ letters of appointment are available

forinspection by appointment at the Company’s registered

officeduring normal office hours and at the AGM.

Board induction programme

We develop a tailored and comprehensive induction programme

foreach externally appointed Director which aims to ensure that

new appointees are equipped to fulfil their role and participate

inBoard discussions as quickly as possible. The programme

includes one-to-one meetings with the Chair, the Group CFO,

theCEO Royal Mail, the CEO GLS, the Company Secretary and

theNon-Executive Directors. It also includes various meetings

withSenior Management, visits to our key operational sites and

postie walks. Shashi Verma joined theBoard in September 2021

and a summary of his key induction meetings andvisits is set out in

the adjacent column.

“ Despite restrictions imposed due to the

pandemic, my induction programme

hasbeenvery informative and well

organised. Ihave particularly valued

meetingemployees across various parts

of our UKbusiness, and I look forward to

visiting GLS operations later this year as

overseas travel constraints are removed.”

Shashi Verma’s induction programme

September 2021

 Individual meeting with the CEO GLS.

October 2021

 Individual meeting with the CEO Royal Mail.

 Individual meeting with the Director of Investor Relations.

December 2021

 Individual meetings with various members of the Royal Mail

ExecutiveBoard.

 Site visit to the Mount Pleasant delivery office and meeting staff.

 Overview of regulation with the Director of Regulation

andCompetitionPolicy.

 Individual meetings with the Company’s brokers.

 Overview of IT and cyber security with the Chief Information

SecurityOfficer.

 Overview of pensions with the Director of Pensions.

 Individual meeting with the external auditor.

 Site visit to the Hammersmith delivery office and meeting staff.

 Postie walk in Hammersmith.

 Overview of competition law with the Assistant General Counsel

ofCompetition, Regulation and Data.

February 2022

 Site visit to the North West Hub with the Company Secretary.

April 2022

 Individual meetings with Royal Mail’s newly appointed Chief

InformationOfficer, Chief Finance Officer, Chief Information

SecurityOfficer and interim Safety Director.

 Site visit to the Heathrow Worldwide Distribution Centre and meeting staff.

Royal Mail plc

Annual Report and Financial Statements 2021-22

92

Corporate Governance

Composition, Succession and Evaluation

2020-21 Board evaluation progress report

During 2020-21, the Board’s performance and effectiveness were evaluated with the assistance of Independent Board Evaluation,

anindependent consultancy that had no other relationship with the Group or its individual Directors. Details of how the evaluation

wasconducted can be found in the Annual Report and Financial Statements 2020-21. The key actions arising from the evaluation

andprogress to date are set out below.

Actions Progress

Board focus and discussion

 Concentrate the Board’s agenda on

strategic or tactical matters and

overseeing the Group’s performance.

 Ensure that sufficient time is allowed

for discussions in relation to strategy,

succession and talent management,

ESG and culture change.

 The Board has spent more time discussing strategic matters and overseeing

performance during the year, with an increased focus on the Board Committees

doing the heavy lifting and avoiding duplication by the Board.

 Board and Committee meetings have devoted more time to considering matters

related to strategy, succession and talent management, ESG and culture change.

Composition

 Recruit two additional Non Executive

Directors, including at least one from

a minority ethnic background, with

skills complementary to those of

theexisting Board members.

 Shashi Verma joined the Board in September 2021. His skills complement those

ofthe existing Board members and his appointment fulfils our commitment

totheParker Review.

Expectations around running a plc

 Develop a programme for

incomingDirectors and Royal

Mailand GLS Executive Board

members to supplement their

understanding of the Board and

stakeholders’ expectations.

 Agree a revised set of performance

measures aligned to the Group’s

keystrategic objectives.

 Schedule a Board session to discuss

and further develop the Group’s

stakeholder engagement activities.

 A comprehensive induction programme was provided to Shashi Verma (seepage92).

 The Royal Mail Executive Board has been refreshed to include executives with

previous listed plc experience gained outside Royal Mail.

 The Director of Investor Relations presented the 2021 investor perception study

tothe Board in July 2021. This has helped supplement the Company’s depth of

understanding of investor needs and plc expectations. Our investor engagement

plan was updated to take account of relevant perception study feedback.

 Maria da Cunha, as Designated Non-Executive Director for engagement with

theworkforce, has kept the Board updated on employee stakeholder views

inbothRoyal Mail and GLS. When pandemic restrictions permitted and, in

accordance with safety guidance, the CEOs of both companies have continued

tomeet colleagues, seeking to better understand their views.

 Royal Mail and GLS have both continued to review and enhance their respective

reporting regimes, taking into account the Board’s request to see more emphasis

on lead indicators including appropriate ESG metrics. As part of the drive to take

amore data driven approach to reporting, the Royal Mail Executive Board now

hasa Chief Data and Analytics Officer, an Executive Board appointment.

 The KPIs used to assess Group performance were revised during the year (see

pages 24 and 25).

Talent and succession planning

 Conduct a comprehensive talent

assessment across the Royal Mail

and GLS Senior Management teams

and develop plans to create a strong

talent pipeline.

 The Nomination Committee oversaw a comprehensive talent assessment for

keycritical management roles in both Royal Mail and GLS. The assessment

wasconducted by Korn Ferry and coordinated by the Company Secretary and

theInterim Chief People Officer of Royal Mail. This has resulted in a refresh of talent

in some keyroles, the introduction of a comprehensive psychometric recruitment

evaluation process for new senior hires and documented successionplans. Since

weintroduced our two CEO reporting structure, 30% of our senior roles within

ourRoyal Mail business have been replaced. Furtherdetails are included onpage 96.

Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

93

Strategic Report Corporate Governance

2021-22 Board and Committee evaluation

In March 2022, the Board’s effectiveness and performance were evaluated through the process detailed below, which was facilitated by

theCompany Secretary. The evaluation considered the Board’s composition, diversity and how effectively Board members work together

to achieve objectives.

The key findings from the Board evaluation and the priority actions agreed for 2022-23 are detailed below. Key findings from each of the

Committee evaluations and the actions agreed for 2022-23 are set out in the respective Committee Reports across pages 95 to 141.

Key findings and priority actions arising from 2021-22 Board evaluation

Individual Director performance

Individual Director performance was considered by Board

members via a questionnaire and to help facilitate one-to-one

meetings with the Chair and each individual Director. The findings,

in combination with the individual skills and time commitment

ofeach Director, confirmed that all Directors are considered

tocontribute effectively, and support the proposal for those

Directors to stand for re-appointment at the 2022 AGM.

Chair performance

The performance of the Chair was evaluated by the Senior

Independent Director, with feedback also provided by the rest of

theBoard. The feedback confirmed that Keith Williams provided

strong leadership to the Board throughout the year, facilitated

constructive and inclusive Board discussions and helped to call

onindividual Non-Executive Director experiences to support

theExecutive as appropriate. It also confirmed that he devoted

sufficient time to the role.

2021-22 evaluation process

Key findings Actions

Strategy  Revisit the wider Company strategy, ensuring more regular discussions take place.

 Ensure that Royal Mail develops, in conjunction with its stakeholders, a clear, longer term plan

for its transformation.

 Reconsider the key KPIs used in both businesses, to determine that they remain appropriate in

current market conditions, and especially with Royal Mail’s move to being a parcels-led

business.

Workforce and unions  Be cognizant of the views of our workforce and of the negotiations with our unions.

 Increase the time spent on employee engagement, particularly within GLS now that international

travel has become easier.

Reporting  Develop more standardised and consistent ways for reporting to the Board.

 Further improve the quality of papers, particularly the executive summaries.

Composition  Recruit two additional Non-Executive Directors, preferably one with audit and finance experience

and one with international logistics experience.

Stage 1

Evaluation development

Questionnaires for Board, Committee and

individual Director evaluations developed by

the Company Secretariat team.

Stage 3

Actions agreed

Reports presented, and actions agreed at,

the relevant Board and Committee meetings

inMay 2022.

Stage 2

Evaluation process and review

Questionnaires issued in March 2022 to

Board members and Senior Management

who regularly attend Board and/or

Committee meetings. Completed

questionnaires returned to the Company

Secretary, who then prepared draft reports

of the findings for discussion. Reports

shared with, and reviewed by, relevant

Boardand Committee Chairs for feedback

and comment.

Royal Mail plc

Annual Report and Financial Statements 2021-22

94

Corporate Governance

Composition, Succession and Evaluation continued

Keith Williams

Non-Executive Chair

Dear Shareholder,

I am pleased to update you on the Committee’s activity for the year

ended 27 March 2022.

Committee composition and meetings

The table in the adjacent column contains information about the

Committee’s membership and the number of scheduled meetings

each Director attended and was entitled to attend during the year

ended 27 March 2022.

During the year, several additional meetings took place, including to

consider an externally facilitated talent assessment, set up and

then later progress the appointment of ShashiVerma, and to

discuss Committee changes in light of Rita Griffin’s decision not to

seek re-appointment at our forthcoming AGM.

Formal Committee meetings were attended by the Company

Secretary, the Chief People Officer and other members of the

Senior Management team, where relevant. In line with our Conflicts

of Interest Policy, Directors are asked to absent themselves from

any discussions regarding their own re-appointment or succession.

The Committee is supported by the Company Secretary.

Role of the Committee

The Committee’s role and responsibilities are summarised on page86.

Committee activity

The key activities of the Committee during 2021-22 are set out on

pages 95 to 98.

Board composition

During the year, the Committee reviewed Board composition,

assessing the tenure, experience, skills, knowledge and the

re-appointment and independence of each Director. In response

tothe findings of the 2020-21 Board evaluation (see page 93),

theCommittee oversaw the external search for two new Non-

Executive Directors, and as a result of that search, the Committee

recommended to the Board the appointment of Shashi Verma,

which was subsequently approved by the Board and announced

on30 September 2021. Details on Shashi’s induction programme

can be found on page 92.

Following Rita Griffin’s decision not to seek re-appointment at our

forthcoming AGM, discussions also took place in relation to the

composition of the Board’s Committees. Following consideration

and review, the changes outlined on page 80 were approved.

Non-Executive Director succession and re-appointments

The Committee monitors the tenure of Non-Executive Directors to

ensure that it plans sufficiently in advance of retirements from the

Board to ensure orderly succession of Non-Executive Directors.

All Directors are required to stand for appointment or re-appointment

at each AGM. Ahead of the 2022 AGM, the Committee considered

the performance and effectiveness of each Director as well as their

skills and time commitment. The Committee concluded that all

Directors were valuable members of the Board and subsequently

recommended to the Board that all Directors, with the exception of

Rita Griffin who will retire from the Board at conclusion of the AGM,

should stand for re-appointment at our forthcoming AGM. Biographical

information for each Director is included on pages 82 and 83.

Main objectives for 2021-22

 Complete a talent assessment for key critical management roles in both

Royal Mail and GLS and oversee a development programme in respect

ofthese roles.

 Map short, medium, and long-term succession planning for critical roles

inRoyal Mail and GLS.

 Recruit up to two additional Non-Executive Directors to the Board, one of

which should have appropriate finance and audit experience, and deliver

onthe Board’s aspiration to appoint at least one Director from an ethnic

minority background by 2024.

 Understand and address issues to facilitate the career development

offemale colleagues.

Key activities in 2021-22

 Concluded an extensive external search leading to the appointment

ofShashi Verma as a Non-Executive Director in September 2021.

 Completed a senior leaders’ development assessment programme

withthe support of Korn Ferry.

 Mapped short, medium, and long-term succession plans for Royal Mail

Executive Board roles.

2022-23 priorities

 Accelerate progress in female and ethnic representation across our Senior

Leadership population.

 Review talent capability and development and succession planning within

Royal Mail and GLS, particularly with a view to longer range succession

planning.

 Consider succession plans for the CEO Royal Mail, CEO GLS and Group CFO.

 Recruit up to two additional Non-Executive Directors, preferably one with

audit and finance experience and one with international logistics

experience.

Committee membership and attendance

Director Joined

Attendance

(scheduled

meetings)

Keith Williams

(Chair since 22 May 2019)

19 April 2018 2/2

Maria da Cunha 25 September 2019 2/2

Michael Findlay 25 September 2019 2/2

Rita Griffin 19 April 2018 2/2

Baroness Hogg 1 October 2019 2/2

Lynne Peacock 1 November 2019 2/2

Shashi Verma

1

29 September 2021 1/1

1. Joined as member with effect from 29 September 2021.

Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

95

Strategic Report Corporate Governance

Nomination Committee Report

The Company agreed a success profile with Korn Ferry which

setout what competencies, experiences, traits and drivers

our‘leaders of the future’ should possess to deliver our strategy.

Each individual was then assessed against the success profile

viapsychometric testing and interviews with Korn Ferry coaches

and market partners.

Korn Ferry presented its final report to the Committee in June 2021

which provided a gap analysis of what talent the Company needed

versus what talent it currently had and identified what actions

needed tobe taken to develop or recruit the talent needed to deliver

Royal Mail’s strategy.

Following presentation of the report, individuals met with their

Korn Ferry coach to discuss their report and feedback, how best

toachieve their future aspirations and what this meant in terms

oftheir personal and professional development. Discussions then

took place between the individuals, their line manager and HR to

explore ways that they could support the individual in achieving

their future aspirations.

As a result of the senior development assessment programme,

andto support the operational and strategic needs of Royal Mail

asit delivers its transformation programme, there has been a

refresh oftalent in levels 1 to 5 at Royal Mail, with around 30%

ofthose roleshaving been replaced with external hires. A new

recruitment process has also been implemented which involves

putting all new senior and mid-level hires through a comprehensive

psychometric evaluation process.

Keith Williams, Michael Findlay and Maria da Cunha all reached

three years’ service in their current roles in May 2022. Following

their confirmation that they were willing to continue to serve

forafurther three-year term, the Committee considered and

recommended to the Board that their terms be extended for

afurther three years, subject to annual re-appointment by

shareholders at the 2022 AGM.

The Committee reviewed the Board’s skills matrix during the

year,and re-affirmed its wish to appoint at least one additional

Non-Executive Director with audit and finance experience, and

identified further international logistics experience would be useful.

The Committee is currently engaged in an external search for a

Non-Executive Director with audit and finance experience and a

Non-Executive Director with international logistics experience.

Executive and Senior Management succession

Given the critical importance of the Royal Mail transformation

programme to the Group’s success, during the year the

Committeespent significant time considering talent

requirementsand succession planning across the senior

levelsofthe Royal Mail business.

The Committee considered the findings of a succession mapping

exercise for the Royal Mail Executive Board. This exercise was

co-ordinated by the Interim Chief People Officer at the request

ofthe CEO Royal Mail and asked Royal Mail Executive Board

members to identify their emergency covers and short, medium,

and long-term successors.

The Committee identified that there was alack of female and ethnic

minority successors and very few successors available in the short

and medium term. In order to strengthen the pipeline, a new talent

identification and development programme, ‘Royal Mail Diamonds’,

will be launched shortly.

At the same time, in response to the findings of the 2020-21

Committee evaluation, the Committee launched asenior leaders’

development assessment programme with thesupport of Korn

Ferry aimed at identifying, nurturing and developing the Group’s

future leaders. Korn Ferry was selected asit was thought its

effective diagnostics would help the Company assess a larger

cohort in the effort to manage career development and spot talent.

Board Diversity Policy objectives Implementation and results

Maintain 33% female representation on the Board. Female representation on the Board as at 27 March 2022

was40%.

Place emphasis on developing diversity within the Group and

achieve 33% female representation in senior leadership positions.

Female senior leadership representation within the Group

asat27 March 2022 was 28%.

Compliance with the Parker Review. Following the appointment of a new Non-Executive Director,

thecomposition of the Board aligns with the Parker Review.

Signatories of the Voluntary Code of Conduct for Executive

SearchFirms.

See page 97.

Consider the Policy when recruiting Non-Executive Directors. See page 97.

Consider candidates for Non-Executive Director positions from

awider pool.

Appointed a new Non-Executive Director with no prior FTSE

board experience.

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Corporate Governance

Nomination Committee Report continued

Diversity and inclusion

We recognise the importance of fostering a diverse and

inclusiveculture across the Group. To fulfil our purpose and

supportthe delivery of Royal Mail and GLS’ growth strategies,

itisessential that our workforce reflects the broad diversity of

thecustomers and communities we serve. We must offer an

inclusive, fair and accessible workplace where all our people

cangrow, develop and succeed.

Our Board Diversity Policy aims to ensure that the Board has

theappropriate balance of skills, experience and background

todeliver the Group’s purpose, strategy and values. The table

belowsets out the Diversity Policy’s current objectives, howthe

Committee has implemented them and the outcomes as atthe

dateof this Annual Report. A copy of the Policy is available

atwww.royalmailgroup.com/en/about-us/governance.

The Committee is aware of the recommendations set out in the

FTSE Women Leaders ‘Achieving Gender Balance’ report, which

was published in February 2022, and will consider these, and the

FCA targets, as part of its annual review of the Board Diversity

Policy this coming year.

During the year Royal Mail updated its strategy to increase diversity

across the business and improve inclusivity. The business has also

set new targets in these key areas which will be monitored and

reviewed on a regular basis by the ESG Committee. GLS’ Diversity

and Inclusion Programme, which is currently being developed, will

be considered by the ESG Committee in the coming year.

Our Group Equality and Fairness Policy outlines our approach

topromoting equality, diversity and fairness at all stages of

employment. A copy is available at www.royalmailgroup.com/en/

responsibility/policies-and-reports.

Senior leadership diversity

The gender diversity profile of our Senior Management and their

direct reports as at 27 March 2022 is set out below.

We are disappointed that we have not yet met our current target of33%

female representation in senior leadership roles. We need to intensify

our efforts if we are toachieve this and have therefore introduced

gender balanced shortlisting for all recruitment into our most senior

grades at RoyalMail.

The Board recognises that ethnic minority colleagues are still

under-represented in Senior Management roles. During the year,

Royal Mail introduced ethnic diversity targets (see page 40).

Senior Management* and direct reports

genderdiversity

72

Male 72%

Female 28%

28

* For these purposes, Senior Management is defined as the first layer of management below

Board level, including the Company Secretary, in accordance with the Code.

Recruitment process

In response to the 2020-21 Board evaluation (see page 93), the

Committee oversaw the external search for up to two additional

Non-Executive Directors during the year.

The Committee agreed the candidate specification and engaged

anexternal search agency, Audeliss, to undertake the search

onbehalf of the Committee. Audeliss has specialist expertise in

sourcing candidates from diverse backgrounds and the Committee

determined that the firm had the relevant skills and experience to

successfully undertake the brief. Audeliss is a signatory to the

Voluntary Code of Conduct for Executive Search Firms, which

promotes gender diversity and best practice for corporate Board

recruitment searches. Audeliss has no other connection to the

Group or any of its Directors.

A long list of candidates was prepared and compared against

theCommittee’s latest Board composition, diversity and skill set

review. Due consideration was given to the Board Diversity Policy

and the fact that the Company wished to deliver on its aspiration

toappoint at least one Non-Executive Director from an ethnic

minority background.

A short-list of candidates was then prepared and those shortlisted

attended interviews with the Chair and the Directors.

Following those interviews, feedback was gathered andShashi

Verma wasidentified as the preferred candidate due tohis track

record ofsuccessful technology-led innovation and transformation

gainedinhis current role as Director of Strategy and Chief

Technology Officer for Transport for London. The Committee

notedthe key roletechnology and automation has toplay in

theGroup’s customer offering and the transformation ofRoyal

Mail,and considered that the Group would benefit greatly from

Shashi’s experience. Further information about Shashi’s

background is included on page 83 and details about his

inductionprogramme are set out on page 92.

Financial Statements Additional Information

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Following successful completion of background checks and

references, the Committee considered Shashi’s time commitments

and potential conflicts of interest and confirmed that, in their

opinion, Shashi would be able to devote sufficient time to the

Company and did not have any current conflicts of interest.

Following a recommendation from the Committee, the Board

approved the appointment of Shashi and it was announced on

30 September 2021. Shashi is subject to re-appointment by

shareholders at the 2022 AGM.

Time commitments

The terms of appointment of each Non-Executive Director require

them to devote, on average, a minimum of two days a month to

theGroup’s business. In practice, they tend to devote considerably

more time than this, supporting projects where their areas of

expertise contribute to specific initiatives.

The Committee has reviewed the time each of the Non-Executive

Directors has spent discharging their duties to the Company and

confirms that each hasdemonstrated that they have sufficient time

to fulfil their roleproperly.

Each Non-Executive Director is required to declare any significant

outside commitments prior to their appointment with an indication

of the time commitment involved. Any new external appointments

which may impact existing time commitments will be considered

bythe Chair and agreed by the Board in advance.

Committee evaluation

The Committee’s annual evaluation of its performance was

undertaken as part of the Board effectiveness evaluation

(seepage94). The key actions identified for implementation in

2022-23 are set out below.

Actions

Review talent capability and development and succession

planning within Royal Mail and GLS, particularly with a

view to longer range succession planning.

Consider succession plans for the CEO Royal Mail, CEO

GLS and Group CFO.

Recruit two additional Non Executive Directors, preferably

one with international logistics experience and one with

audit and finance experience.

Keith Williams

Chair of the Nomination Committee

18 May 2022

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Corporate Governance

Nomination Committee Report continued

Michael Findlay

Chair

Main objectives for 2021-22

 Ensure that further progress is made in relation to improving

financialcontrols.

 Prepare for changes in the corporate reporting and control landscape.

 Further integrate GLS risk and control processes into the Group framework.

 Integrate emerging risks monitoring into reporting processes, including

creating a rolling emerging risks prioritisation as new information

becomes available.

 Continued focus on cyber security risk.

 Ensure that risk is managed appropriately at Group level, including use

ofconsistent measures across the Group.

Key activities in 2021-22

 Assessed the impact of proposals contained within the Business, Energy

and Industrial Strategy White Paper ‘Restoring trust in audit and corporate

governance’ (the BEIS White Paper).

 Reviewed the BEIS White Paper and the Group’s plans to conduct a detailed

review of its processes, controls and remediation activity in preparedness

for any changes that may be implemented as a result of the BEIS White

Paper proposals.

 Reviewed recommendations following an independent external quality

assessment of Internal Audit and reviewed and approved a response plan.

 Monitored and reviewed the Group’s principal and emerging risks with a focus

on cyber security, industrial relations, efficiency and supply chain risks.

 Oversaw the development of a new three-year strategy for the Risk Assurance

function (previously named Internal Audit and Risk Management function).

2022-23 priorities

 Monitor developments in relation to the BEIS White Paper proposals

andbuild a response plan.

 Continue to focus on strengthening and monitoring financial controls.

 Monitor progress made against Risk Assurance’s three-year strategy.

 Continue to enhance the quality of financial reporting including the

application of accounting judgements.

 Monitor the effectiveness of actions in place to mitigate risks with a

particular emphasis on cyber risk.

 Establish a regional risk management process within GLS and integrate

itwithin the Group Framework.

 Develop a framework to provide further clarity and more effective

management of key fraud risks.

Committee membership and attendance

Director Joined

Attendance

(scheduled

meetings)

Michael Findlay

(Chair since 30 May 2019)

30 May 2019 5/5

Baroness Hogg 1 October 2019 5/5

Lynne Peacock 1 November 2019 5/5

Dear Shareholder,

I am pleased to update you on the Committee’s activity for the year

ended 27 March 2022.

Committee composition and meetings

The table in the adjacent column contains information about the

membership of the Committee and the number of scheduled

meetings each Director attended and was entitled to attend during

the year ended 27 March 2022. An additional meeting was held in

June 2021 toconsider and approve the 2020-21 regulatory

financialstatements.

The Board considers that I have recent and relevant financial

experience, having spent nearly 30 years in investment banking.

Iwas also previously a Non-Executive Director of UK Mail Group plc

and a member of its audit committee. The Board considers the

Committee as a whole has competence relevant to the Company’s

businesses (see pages 82 and 83). To further strengthen the

Committee, we are engaged in an external search for a Non-

Executive Director with relevant finance experience.

Committee meetings were routinely attended by the Non-Executive

Chair, the CEO Royal Mail, the CEO GLS, the Group CFO, the Director

of Risk Assurance, the Director of Financial Control, the Group

General Counsel and Company Secretary, and representatives from

the external auditor, KPMG. Other members of Senior Management

were invited to attend certain meetings as appropriate.

The Committee meets regularly with the external auditor and the

Director of Risk Assurance, independent of the Executive Directors,

to ensure that reporting, forecasting and risk management

processes are subject to rigorous review throughout the year.

Role of the Committee and its advisers

The Committee’s role and responsibilities are summarised on

page86.

To support the Committee in carrying out its responsibilities, it

receives independent assurance from the Risk Assurance and

Compliance functions. The Committee is also supported by the Risk

Management Committee, the GLS Audit and Risk Committee (GLS

ARC) and the Group General Counsel and Company Secretary. I

regularly attend the GLS ARC, along with the Director of Risk

Assurance and the Group General Counsel and Company Secretary.

The Committee is also supported by the external auditor, which

provides regular reports across a wide range of issues in support

ofthe Committee’s oversight responsibilities, as well as the

Group’sactuary, Willis Towers Watson Limited, which provides

expertopinion and long-term assumption advice with respect

topension accounting, and Aon Limited, which provides similar

expertise in relation to other long-term liabilities.

Financial Statements Additional Information

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Audit and Risk Committee Report

Committee activity

The key activities of the Committee during 2021-22 are set out in the table below.

Matter considered Activity

Financial Reporting

Half-year and full-year results

Significant matters and

judgements

 Reviewed and satisfied itself on the integrity of the half-year and full-year results, including consideration of the significant

accounting judgements, legal claims, contingent liabilities and contingent assets, the policies being applied, and the

statutory audit findings.

Fair, balanced and

understandable

 Reviewed and assessed the Annual Report and Financial Statements to be fair, balanced and understandable (see page

101).

Going concern and viability

statement

 Considered the going concern basis of preparation of the Financial Statements (see page 101).

 Considered the Viability Statement (see page 101).

Pension assumptions  Reviewed the Group’s key pension assumptions for the half-year and full-year Financial Statements.

Covenant compliance  Reviewed covenant compliance at the half year and full year.

Regulatory accounts  Reviewed and approved the regulatory financial statements 2020-21.

Alternative Performance

Measures

 Reviewed the APMs (see page 101).

External Auditor

Re-appointment  Recommended to the Board the re-appointment of KPMG as external auditor.

 Reviewed and approved the external auditor’s engagement letter.

 Reviewed and recommended to the Board the approval of the external auditor’s letter of representation.

KPMG reports  Reviewed KPMG’s control findings and audit findings, including significant judgements, and the audit opinion for the

half-year and full-year results.

 Reviewed and approved KPMG’s audit plan and strategy.

Effectiveness  Conducted a review of the effectiveness of the external audit process (see page 104).

Independence and objectivity  Reviewed the independence and objectivity of the external auditor (see page 104).

Audit and non-audit services

and fees

 Reviewed and approved the external audit fee including any non-audit services fees.

Audit cycle  Reviewed the external audit cycle and identified improvements for future audits.

Internal Control and Risk Management

Financial control  Received regular updates on internal financial controls and the Company’s programme of activity to further enhance the

controls environment.

Risk Management Committee  Received regular updates on the proceedings of the Risk Management Committee meetings.

Risk appetite  Reviewed and monitored the Group’s risk appetite.

Principal and emerging risks  Assessed the risks that might impact the achievement of the Group’s strategy, including consideration of whether these

should be categorised as a principal risk to the business.

 Reviewed the final principal risks and uncertainties statement for the Annual Report and Financial Statements.

 Discussed new and emerging risks and the interrelationships between the principal risks.

Risk profile  Reviewed changes to the Group’s risk profile on a bi-annual basis and held deep-dive discussions on principal risk areas

including industrial relations.

Cyber security  Received regular cyber security updates.

 Participated in three deep-dive discussions.

 Reviewed the control environment around systems access, operational technology and customer scams.

Effectiveness  Reviewed the effectiveness of the risk management and internal control systems (see page 105).

BEIS Consultation  Discussed the BEIS White Paper proposals.

 Considered a BEIS White Paper impact assessment.

Internal Audit

Strategy  Oversaw the development of a new three-year strategy for the Risk Assurance function, including the development

ofaglobal risk management and audit approach and plans to build the function’s technology audit and data

analyticscapabilities.

Internal Audit  Reviewed and approved the Internal Audit plan.

 Received regular updates on Internal Audit activity.

Effectiveness and strategy  Reviewed progress against the Risk Assurance strategy and external quality assessment response plan (see page 106).

Risk Assurance Charter  Reviewed and approved changes to the Risk Assurance Charter.

Independence and objectivity  Reviewed the independence and objectivity of Internal Audit.

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Corporate Governance

Audit and Risk Committee Report continued

Matter considered Activity

Treasury and Taxation

Treasury Policy  Reviewed and recommended to the Board the approval of changes to the Group’s Treasury Policy.

Tax strategy and risk  Reviewed and recommended to the Board the approval of the revised tax strategy for 2022-23.

 Reviewed bi-annually the Group’s tax risks.

Pensions

Pensions Committee  Received Pensions Committee meeting updates.

Pension schemes  Received an update on the governance of the Company’s pension schemes.

 Received an update on the progress for the launch of the proposed Royal Mail Collective Plan.

Whistleblowing, Compliance and Fraud

Whistleblowing  Reviewed regular whistleblowing reports.

 Reviewed the end-to-end process of Royal Mail and GLS’ whistleblowing process.

Compliance  Received regular updates from the Compliance Director.

Fraud  Reviewed the Company’s procedures for detecting fraud.

Bribery  Reviewed the Company’s systems and controls for the prevention of bribery.

 Reviewed recommendations and progress on actions from a bribery risk assessment conducted by an external

consultant.

Governance

Forward planner  Reviewed the Committee’s 2022 forward planner.

Terms of Reference  Reviewed and recommended the Board approve changes to the Committee’s Terms of Reference.

 Approved changes to the Terms of Reference for the GLS ARC, the Pensions Committee and the Risk Management

Committee.

Risk management  Reviewed and approved changes to the Risk Management Policy.

Payment practices  Received an update on duty to report payment practices and performance for the half year and full year.

ARC report  Approved the Committee’s report for the Annual Report and Financial Statements 2021-22.

Evaluation  Received updates on the status of actions identified in the 2020-21 Committee evaluation.

 Reviewed the findings from the 2021-22 Committee evaluation and agreed priority actions for 2022-23 (see page 106).

Fair, balanced and understandable

At the request of the Board, the Committee assessed whether

theAnnual Report and Financial Statements 2021-22, taken as

awhole, were fair, balanced and understandable, and provide

theinformation necessary for shareholders to assess the

Group’sposition, performance, business model and strategy.

TheCommittee’s assessment took into account:

 Internal verification of factual content.

 Comprehensive reviews undertaken by the Group’s legal team

and key members of the Senior Management team.

 Consistency checks against the Group’s market disclosures

andstrategy.

 External reviews undertaken by advisers and external auditor.

The Committee concluded that the Annual Report and Financial

Statements 2021-22 were fair, balanced and understandable,

andthe Board confirmed this view. The Board’s statement is

contained on page 146.

Alternative performance measures

Following guidance in the FRC’s 2021 Thematic Review of APMs,

theCommittee reviewed the Group’s APMs to ensure that they

remainrelevant, are given no more than equal prominence to

GAAPmeasures, have a reasonable materiality threshold and

havegoodquality reconciliations between the APM and the closest

GAAPmeasure. The Committee challenged the use of ‘pre’ and ‘post’

IFRS16 measures and was satisfied with Management’s response

that both pre and post IFRS 16 disclosures were provided in relation

to cash flow and net debt, given the pre IFRS 16 measures are used

for capital markets and for loan covenant purposes.

Going concern and viability statements

The Board’s going concern and viability statements are set out

onpage 63.

The Committee considered the basis of preparation of the Financial

Statements as a going concern, as set out in Note 1 to the Financial

Statements. The Committee also reviewed the form and basis of

conclusion underlying the long-term Viability Statement.

In undertaking these assessments, the Committee reviewed the

business plan, taking account of the Group’s principal risks (see

pages 56 to 61), capital structure and the severe but plausible

downside scenarios (see pages 62 to 63). The Committee reviewed

and challenged the appropriateness of the scenarios modelled, the

mitigating factors, and the three-year viability assessment period

reflecting the Group’s outlook and the effects of the macro-

economic uncertainties faced by the Group.

As a result of the procedures performed, and the responses

received from Management on the challenges raised, the

Committee satisfied itself that the going concern basis of

preparation is appropriate and that the Group is commercially

viable over the duration of its assessment period.

Financial Statements Additional Information

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Significant matters and application of judgements

During the year, the Committee considered and discussed a number of significant matters and/or judgements made by Management.

Thetable below details the key issues discussed and the actions taken.

Matter Action taken by the Committee

Deferred revenue – advance customer payments

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 the balance is made up of stamps

sold to the general public. Consistent with the previous

reporting period, Management has used a number of different

data sources to calculate the estimated deferred revenue

liability. These data sources include: revenue data related to

stamp sales through the Post Office network, historic trends of

deferred revenue balances, changes to the number of working

days during the period, price rises and adjustments to reflect

posting patterns around key events close to the reporting year

end, e.g. Mothering Sunday and Easter.

Management uses judgement in applying a weighting to the

components of the data sources. This judgement impacts

revenue, profit and net assets.

At 27 March 2022 the Group recognised £160 million

(March2021: £218 million) of deferred revenue in respect

ofstamps sold to the general public but not used at the

balancesheet date.

The Committee examined a report from Management

summarising the deferred revenue calculation. We compared

the level of deferred revenue recognised by Management at

each reporting date to ensure a consistent approach.

Separately, the external auditor reviewed the statistical

processes and assessed the judgemental assumptions made.

The Committee concluded that the level of deferred revenue

remained appropriate.

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. The Committee

has requested that Management considers the impact that

this change may have on the SITHOP balance going forward.

Pensions – defined benefit obligations

The valuation of the defined benefit pension plan obligations

relies on the estimation of long-term assumptions, i.e. discount

rate, inflation, mortality and pension increases. Small movements

in these assumptions can lead to material impacts on the

balance sheet.

The valuation of certain unquoted pension scheme assets also

includes a high degree of estimation uncertainty.

In view of the complexity of accounting for pension schemes,

significant focus is required on the associated disclosure to

ensure that it is fair, balanced and understandable.

Key long-term assumptions were prepared by the Group’s

actuary, Willis Towers Watson Limited, and benchmarked

against prevailing economic indicators and other large

pension schemes. All of these assumptions are disclosed in

Note 11 (pages 186 to 195) to the Financial Statements.

Changes in the assumptions were summarised for the

Committee, including changes in demographic assumptions

resulting from mortality studies undertaken for the recent

triennial valuation, and explanations were provided for the

movements in returns on scheme assets, particularly as a

result of the liability hedging strategy. The results of the

assumption benchmarking were also discussed.

The external auditor used its own independent actuarial

experts toconfirm that the assumptions used were

reasonable andappropriate.

The Committee was also satisfied with the approach taken

toverify third-party valuations for unquoted scheme assets

and the associated disclosures.

Accounting for GLS acquisition: Rosenau Transport

The Group acquired the business of Rosenau Transport on

1December 2021. IFRS 3 required the purchase price to be

allocated between tangible assets, intangible assets and

goodwill (see Note 12 to the Financial Statements).

GLS Management reviewed the purchase price allocation

exercise which was undertaken with advice from an

independent external consultant. A summary of this exercise

was presented to the Committee who concluded that the

accounting and valuation conclusions were appropriate.

Royal Mail plc

Annual Report and Financial Statements 2021-22

102

Corporate Governance

Audit and Risk Committee Report continued

Matter Action taken by the Committee

Impairment testing

During the year an impairment test was carried out in respect of:

Parent Company, Royal Mail plc (see pages 169 and 170)

The carrying amount of the Parent Company’s investments

in,and amounts due from, subsidiaries represents 83%

(2020-21: 70%) and 17% (2020-21: 30%) of the Parent Company’s

total assets respectively. Their recoverability is notat a high

risk of significant misstatement or subject to significant

judgement. However, due to the materiality in the context of the

Parent Company Financial Statements, this is considered to be

the area that has the greatest effect on the Parent Company

balance sheet.

The Committee received confirmation from Management that it

had adequately assessed the recoverability of investments

insubsidiaries and intercompany indebtedness, by assessing

and confirming that the net assets of the relevant subsidiaries

(being an approximation of their minimum recoverable amount)

were in excess of their carrying value at the balance sheet date.

Provisions for liabilities

The Group has significant provisions in relation to voluntary

redundancy, compensation and associated costs of £70 million,

mainly as a result of an operational reorganisation announced

in January 2022. The Group has also recognised provisions for

industrial diseases claims, property decommissioning costs

and litigation claims. Judgement is exercised in making the

assumptions that form the basis of the provisions calculations

(see Notes 1 and 25 to the Financial Statements).

The Committee reviewed the methodology and key assumptions

used in determining significant provisions, including the basis for

any release of provisions. The Committee considered the past

utilisation of each provision, when reviewing the appropriateness

of the provision. The Committee concluded that the amounts

recorded in respect ofprovisions were appropriate, represented

the current best estimate of each liability, and that associated

disclosures wereappropriate.

Financial Statements Additional Information

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Assessment and safeguarding the independence

andobjectivity of the external auditor

The Committee considered the independence and objectivity

oftheexternal auditor through:

 Assurances provided by the external auditor on the

safeguardsin place to maintain independence.

 Oversight of the Non-Audit Services Policy (see below).

 Reviewing the external auditor’s non-audit services and

fees(see below).

 Oversight of the Ex-Auditor Employment Policy.

The Committee concluded that it is satisfied with the

independenceand objectivity of KPMG.

Non-Audit Services Policy

Our Non-Audit Services Policy governs the process for approving

certain non-audit services provided by the external auditor. The

purpose of the Policy is to ensure that the level of fees earned from

non-audit services and the type of services provided do not impair

the external auditor’s independence and objectivity. The Policy is

overseen and was reviewed by the Committee during the year to

ensure that it remained fit for purpose. As a result, the Policy was

updated to provide a list of permitted non-audit services and to

explicitly state that fees must be on a fixed fee basis.

In general, the external auditor is not approached to perform

non-audit work. The Committee does, however, currently permit

theexternal auditor to provide non-audit-related services, insofar

as permitted by auditor independence rules, and the external

auditor may be engaged to perform such non-audit services if

itisuniquely placed to undertake them, or if the performance

ofthenon-audit services will support a future statutory audit

(including the provision of buyer assist due diligence) and would

notcompromise the auditor’s independence. The engagement

mayfollow a competitive tender process. The Committee

hasdelegated authority to the Group CFO to pre-approve

assignments up to £25,000, with an annual limit of £500,000.

External auditor fees

The Committee keeps under review the services and fees incurred

bythe external auditor. Total fees for audit and audit-related

workduring the year amounted to £3,453,000, and total fees

fornon-audit services during the year amounted to £420,000,

whichrepresented around 12% of the external audit fee. Non-audit

services primarily related to a review of opinion on the half year

Financial Statements and a regulatory audit. The Committee was

satisfied that the non-audit work was best handled by the external

auditor because of its knowledge of the Group, and that undertaking

the work did not put under threat the independence of the external

auditor. All non-audit services were approved in accordance with

the Non-Audit Services Policy.

In addition to the fees earned from the Company, KPMG has been

engaged by the respective Pension Trustee as external auditor of

the Royal Mail Pension Plan and the Royal Mail Defined Contribution

Plan, the fees for which were £146,000 in 2021-22.

External auditor

KPMG was appointed by shareholders as the Group’s statutory

auditor at the 2015 AGM following a formal tender process

undertaken in 2014. The firm’s re-appointment was confirmed

byshareholders at the 2021 AGM. The current lead audit partner,

Ian Griffiths, has served for two years but has been in the

Company’s audit team for seven years. To ensure an independent

and objective audit process, Ian Griffiths will be replaced by

AndrewBradshaw at the end of the 2021-22 audit process.

Theexternal audit contract will be put out to tender at least

every10 years in line with the provisions of the UK Competition

andMarkets Authority’s Statutory Audit Services for Large

Companies Market Investigation (Mandatory Use of Competitive

Tender Processes and Audit Committee Responsibilities) Order

2014 (the CMA Order). The Committee therefore considers that

itwould be appropriate to conduct an external audit tender by

nolater than the 2025-26 reporting year, by which time KPMG

willhave been the Group’s external auditor for 10 years.

We have complied in all material respects throughout the year

withthe CMA Order.

Effectiveness of the external audit process

The Committee is responsible for the relationship with the external

auditor, including examining the effectiveness of the audit process.

At its meeting in May 2022, the Committee carried out its annual

review of the external auditor’s performance and the effectiveness

of the external audit process, taking into account:

 The terms and scope of the external auditor’s engagement,

asset out in its engagement letter.

 The audit work plan for the financial year 2021-22.

 The effectiveness of the working relationship and

interactionswith the Committee.

 The quality of the audit, the handling of significant

judgementsby the external auditor and responses

toquestionsfrom the Committee.

 A report from KPMG on its own internal quality procedures.

 Feedback from the Committee evaluation process which

confirmed that KPMG’s performance during the year was good.

 Feedback from the external auditor effectiveness survey, which

was completed by key stakeholders involved in the external

audit process and confirmed that the KPMG audit team had

sufficient experience and technical and industry knowledge,

waswell resourced with sufficient continuity of people within

the team, communicated clearly and constructively, and

displayed adequate professional scepticism.

Based on its review, the Committee concluded that the external

audit process had been completed effectively, that KPMG’s

engagement had been managed well and that there had been an

appropriate level of challenge from the audit team. To ensure a

continuous improvement in the audit process, the Committee

identified a number of areas which could be enhanced, including

theprovision of more insight and added value in terms of

communicating future potential risks; providing updates on best

practice and industry trends, including on controls; and providing

regular updates on accounting and governance developments.

These matters will be discussed with KPMG and addressed as

partof the overall 2022-23 audit planning.

Royal Mail plc

Annual Report and Financial Statements 2021-22

104

Corporate Governance

Audit and Risk Committee Report continued

Review of risk management and internalcontrolsystems

The Committee has reviewed the effectiveness of the Group’s risk

management and internal control systems. This covered all material

controls including financial, operational and compliance controls.

The evaluation process is ongoing throughout the year. An annual

paper is presented to the Committee and Board providing a summary

of risk and assurance activity to support their annual assessment.

The assessment included consideration of the following:

 Output from the key functions that implement the Group’s

riskframework (see page 52).

 Deep-dive discussions of principal risks with their respective

Executive Board member risk owners scheduled throughout the

year focused on existing controls and additional actions required.

 Quarterly reporting from Compliance and Ethics on the

operating effectiveness of compliance controls.

 Progress made against the Internal Audit plan and the

conclusions provided by the independent audit reports

issuedinthe year.

 Timeliness of implementation of actions agreed to mitigate

therisks and control gaps identified in internal audits.

 The findings of the external quality review of the effectiveness,

independence and objectivity of Internal Audit.

 Year-end finance letters to the Group CFO to confirm

compliancewith relevant legislation, financial reporting

andcontrols requirements.

 The opinion and reports of the external auditor.

Whilst the Committee considered the system of risk management

and internal control to be generally effective in the year, in light of

the increasing global risks facing the business as it transforms,

there is recognition of the need to improve its effectiveness. Key

activity underway and planned to be performed in 2022/23 includes:

 Formalising, systemising and strengthening our financial controls.

 Further improving our cyber security controls in response

toincreasing external threats.

 Developing a formalised assurance map across the Group’s

principal risks.

 Integrating risk management and Internal Audit activity across

the Group.

Re-appointment of external auditor

The Committee concluded that it is satisfied with the independence

and objectivity of KPMG. This, together with the findings that the

external audit process was effective, supports the Committee’s

recommendation to the Board that it seeks shareholder approval

atthe 2022 AGM for the re-appointment of KPMG as the external

auditor for the year ending 26 March 2023.

Risk management and internal control

The Board believes that effective risk management and a sound

internal control environment are fundamental to the Group’s

success. It has established a risk management framework to

ensure that we identify, assess and manage risks that could impact

ourbusiness (see pages 52 to 55) and reviews the effectiveness of

this framework annually. The Committee supports the Board

through its ongoing review of the Group’s principal and emerging

risks (see pages 54 to 61) and by advising the Board on the Group’s

overall risk appetite and the effectiveness of risk management and

internal control systems.

In relation to the Group’s financial reporting process, the

Committee relies on a number of specific internal control

mechanisms to ensure that the Group provides accurate, timely

financial results and implements accounting standards and

judgements effectively including in relation to going concern

andviability. The Committee receives:

 Regular updates on the evolving regulatory environment including

FRC advice, best practice guidance and the requirements of the

Code and the Disclosure Guidance and Transparency Rules.

TheCommittee also receives reports on proposed changes

tolegislation and regulatory reviews and the potential impacts.

 Management reports including analysis of results, forecasts and

comparisons against last year’s results, and assurance from the

external auditor.

Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

105

Strategic Report Corporate Governance

Committee evaluation

The Committee’s annual evaluation of its performance was

undertaken as part of the Board effectiveness evaluation

(seepage94). The key actions identified for implementation in

2022-23 are set out below.

Actions

Further integrate GLS issues into the agenda.

Increase focus on risk mitigation.

Schedule updates on internal controls improvement

programmes.

Michael Findlay

Chair of the Audit and Risk Committee

18 May 2022

Internal audit

Internal Audit provides independent assurance to the Committee

and the Board on the effectiveness of the internal control systems

and elements of the risk management process. Internal Audit sits

within the Risk Assurance function which is led by the Director of

Risk Assurance, who joined the Group in August 2021. He has direct

access to me and the Board Chair, which ensures the independence

of the function.

At each Committee meeting, an update on Internal Audit activity

isprovided, including an overview of audits completed in the

period,with a focus on unsatisfactory audits; progress made

against the Internal Audit plan; and the status of actions arising

from completed audits.

An Internal Audit plan aligned to the Group’s principal risks is

developed annually and updated for changes in risks and priorities

with the Committee’s approval. Prior to the start of the new

financial year, the Committee reviewed and approved the Internal

Audit plan, which incorporates thematic audits that encompass

both the Royal Mail and GLS businesses.

During the year, the Committee oversaw the development of,

andapproved, a new three-year strategy which will enhance the

effectiveness of the Risk Assurance function and supports the

Group’s strategic development. The strategy reflects the findings

ofan independent external assessment (see below) and insights

from the Director of Risk Assurance’s first 100 days. The Committee

will regularly monitor progress made against the strategy.

Effectiveness of Internal Audit

In accordance with the Chartered Institute of Internal Auditors

Standards (CIIA Standards), during the year, Deloitte, on behalf

ofthe Committee, conducted an independent external quality

assessment (EQA) on the effectiveness of Royal Mail Internal

Audit(RM IA) and GLS Internal Audit (GLS IA). The EQA findings

concluded that:

 RM IA was an established team within the context of a

matureorganisation, with a clearly defined remit and

policiesand procedures.

 RM IA’s ways of working demonstrate a high degree of

conformance to the CIIA Standards and display many

attributesof a high-performing team.

 Opportunities to enhance the effectiveness of RM IA were

identified, including digitising ways of working; increasing skills

in digital and IT audit; building closer relationships with second-

line assurance teams; and building greater business knowledge

within the team.

 GLS IA was assessed to be at a developing state of maturity

withreference to CIIA Standards, with opportunities to improve

quality assurance, independence and objectivity, and evolve

thenature and performance of audit work to a pure third-line

assurance function that aligns to principal risks.

The Committee considered the EQA findings and recommendations

and, as part of the development of the Risk Assurance function’s

new strategy (see above), ensured that processes were in place to

address the recommendations.

Royal Mail plc

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106

Corporate Governance

Audit and Risk Committee Report continued

Rita Griffin

Chair

Main objectives for 2021-22

 Development, approval and implementation of Royal Mail and GLS

environmental strategies.

 Focus on health, safety and wellbeing performance.

 Focus on culture, diversity and building trust.

 Review ESG governance, including supporting documentation.

Key activities for 2021-22

 Reviewed the development, implementation and impact of both the Royal

Mail and GLS environmental strategies and targets.

 Oversaw the delivery of health and safety initiatives to drive a reduction in

accidents and injuries across the Group.

 Reviewed Royal Mail’s target culture, with specific focus on effectiveness

of culture, engagement programmes and progress on rebuilding trust.

 Reviewed ongoing COVID-19 precautions, support for employee wellbeing

and sickness absence levels.

 Oversaw the development and adoption of overarching Group ESG

Principles and supporting governance framework.

2022-23 priorities

 Oversee development of detailed plans to implement effectively and

communicate the Royal Mail and GLS environment strategies, including

monitoring progress against stated ambitions.

 Oversee and monitor health, safety and wellbeing performance to ensure

that we keep our employees and customers safe and well.

 Continue to monitor Royal Mail’s culture and engagement performance

against values and target culture.

 Monitor diversity, equality and inclusion programmes, and monitor

progress against published Royal Mail targets.

 Monitor the development and implementation of an ESG framework

across GLS.

 Enhance engagement with investors in relation to ESG matters.

 Ensure that ESG is a fundamental part of business decision making and

governance.

Committee membership, meetings and attendance

The table below shows the number of meetings each Director attended and

the number of meetings they were entitled to attend during the year ended

27 March 2022.

Director Joined

Attendance

(scheduled

meetings)

Rita Griffin

(Chair since 25 September 2019)

25 September 2019 4/4

Maria da Cunha 25 September 2019 4/4

Baroness Hogg 4 February 2021 4/4

Shashi Verma

1

29 September 2021 2/2

Lynne Peacock

2

1 February 2022 1/1

1. Joined as a member with effect from 29 September 2021.

2. Joined as a member with effect from 1 February 2022.

Dear Shareholder,

I am pleased to update you on the Committee’s activity for the

yearended 27 March 2022. Given the increase in the use of ESG

terminology across the Group and amongst our key stakeholders,

in December 2021 the Committee recommended to the Board that

the Corporate Responsibility Committee should be renamed the

ESG Committee. The Board approved this recommendation in

March 2022.

Information about the Group’s ESG programme and performance

during the year is included on pages 30 to 45. Our ESG programme

supports the delivery of the Group’s purpose – to ‘connect

customers, companies and countries’ – and defines whatwe do and

how we do it.

As announced on 1 February 2022, I am not seeking re-

appointment to the Board at the forthcoming AGM. In recent years

we have made goodprogress in developing responsible,

sustainable practices inboth our businesses. And this year I am

particularly pleased thatwe have established the foundations for a

new Group-wide ESG framework which is built around the issues

that are most relevant to our stakeholders and our business. Lynne

Peacock, who joined the Committee on 1 February 2022, will

succeed me asChair at the end of our forthcoming AGM. Iwish her,

the other members of the Committee and everyone acrossthe

Group the very best for the future.

Committee composition and meetings

The table in the adjacent column contains information about the

membership of the Committee and the number of scheduled

meetings each Director attended and was entitled to attend

duringthe year ended 27 March 2022.

Committee meetings were also attended by the CEOs Royal

Mailand GLS and, as required, by the Royal Mail Director of

Corporate Affairs, Chief People Officer and the Director of Safety.

The Committee is also supported by the Company Secretary and

members of the ESG teams for both Royal Mail and GLS. I would

like to thank the members for the open and constructive

discussions that take place during our meetings and their

personalcommitment to our wide-ranging and impactful agenda.

In September 2021, Shashi Verma joined the Committee. Shashi

brings specific logistics and customer service operations expertise,

which the 2020-21 Committee evaluation process noted would

enhance the Committee’s overall skills and experience.

Committee activity

The Committee’s key objectives for the year are outlined on the

adjacent column. Performance in each of these areas is tracked

using an ESG dashboard tool which is a standing item at every

Committee meeting.

The main areas the Committee focused on during the year are also

detailed in the adjacent column and below. The Committee is also

responsible for keeping abreast of emerging ESG issues and

addressing any areas of concern in relation to the Group’s culture

and issues raised by its internal stakeholders.

Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

107

Strategic Report Corporate Governance

Environmental, Social and Governance Committee Report

Social

Health, safety and wellbeing

The health, safety and wellbeing of the Group’s workforce, and

those impacted by our operations, is a key priority and is a standing

Committee agenda item. Throughout the year, the Group continued

to implement measures to protect and support our people through

the COVID-19 pandemic, ensuring that necessary safety precautions,

wellbeing and mental health support were available. The Committee

monitored the utilisation and effectiveness of these measures and

regularly reviewed employee absence rates.

The Committee also discussed the roll out of the GLS Occupational

Health and Safety (OHS) awareness and training programme

designed to improve safety across the GLS business. The

Committee noted that the roll out of the programme included

management training and development of specific content for

transport partners. The Committee discussed the metrics

developed to monitor the effectiveness of the OHS programme.

Culture

The Committee is responsible for monitoring the Group’s culture

and works with Management to ensure that culture is aligned to the

Group’s strategy. Culture and engagement are standing items on

the Committee’s agenda, and at each Board meeting I provide an

update to the Board.

The Committee monitored the development of the Royal Mail

culture target and supporting canvas which set out the journey

towards the business’ target culture and the key activities to deliver

it. The Committee continued to monitor Trust pulse survey results

and employee feedback, and discussed the actions being taken in

response to key findings and areas for improvement. More

information can be found on pages 84 and 85.

During the year, the Committee reviewed in detail the levels and

causes of sickness absence within Royal Mail. Sickness absence is

a key metric which forms part of the KPI dashboard reviewed by the

Committee. Understanding the trends and the impact of COVID-19

was a key area of focus. In addition, the Committee was provided

with an overview of employee turnover and how this had changed

since the pandemic. In an increasingly competitive labour market,

understanding and addressing why people leave is another key

area of focus for the Committee.

The Committee also undertook an in-depth review of the Royal

Maildiversity, equality and inclusion programmes and associated

targets, and suggested potential areas of focus for the design of

theCulture aspects of the future GLS ESG Framework.

All these activities provide the Committee with an understanding

ofthe current culture and performance across the Group.

Group ESG Principles

During the year, the Committee oversaw the development of

overarching ESG Principles for the Group. The establishment

ofthese Principles reflects the Group’s aspiration to be a leader

inESG matters. It also addresses feedback from the 2020-21

Committee evaluation process, which highlighted the need for the

Committee to create a strategic framework and review priorities.

Aligned to key UN Sustainability Development Goals, and material

ESG issues identified for the business, the Principles set out

commitments across the full ESG agenda.

Environment

With growing expectations from customers and investors,

thisisastrategically important area for the business.

The Committee spent a considerable proportion of its time focusing

on the detailed plans being developed to support deliveryof the

Royal Mail and GLS environmental strategies (seepages 32 and 33).

Throughout the year, the Committee monitored the implementation

ofactivities to reduce emissions alongwith performance against

key metrics.

The Committee also reviewed each business’ environmental

strategy to ensure alignment to the overarching ESG Principles,

and integration with the respective business strategies. The

Committee discussed the different approaches set out within

thetwo environment strategies, and the reasons for them. The

Committee concluded that both strategies were currently suited to

their relevant stakeholder needs and would continue to be reviewed

as stakeholder expectations and other requirements develop.

In relation to the development of Royal Mail’s environmental

strategy, the Committee undertook a detailed review of the

business’ current net zero ambition from 2050 and considered

aligning it to a 1.5-degree pathway and the Science Based Target

Initiative Net Zero standard. Following this review and discussion,

the Committee recommended to the Board that it approve an

updated ambition of Net Zero by 2040. The Board approved this

recommendation and Royal Mail has now brought forward its net

zero target to 2040.

The Committee also reviewed GLS’ environmental strategy

andsupporting targets, which included the intention to become

climateneutral in Europe from 2022 through the compensation

ofemissions, with a longer-term ambition to reduce scope 1, 2

and3 emissions to zero by 2045.

Royal Mail plc

Annual Report and Financial Statements 2021-22

108

Corporate Governance

Environmental, Social and Governance Committee Report continued

Committee evaluation

The Committee’s annual evaluation of its performance was

undertaken as part of the Board effectiveness evaluation (see page

94). The key actions identified for implementation in 2022-23 are set

out below.

Actions

Ensure there is appropriate time on the agenda to discuss

the key subject areas for both Royal Mail and GLS.

Ensure papers are better and more focused, making

itclearer what Management expect of, and from,

theCommittee.

Schedule sessions on supply chain for both Royal Mail

andGLS.

Rita Griffin

Chair of the Environmental, Social and Governance Committee

18 May 2022

Governance

In addition to developing the Group’s ESG Principles, the Committee

reviewed and updated its Terms of Reference to align with an ESG

structure, commitments of the ESG Principles, and the Committee

focus areas. The Committee also confirms the appointment of John

Crosse, Group Director, Investor Relations as Executive Group

Sponsor for ESG.

In February 2021, all members of the Committee, together with

other members of the Board and members of the Royal Mail

andGLS Executive Boards, participated in a programme of ESG

briefings. The programme incorporated presentations by external

experts on the ESG landscape, stakeholder expectations, the

importance of a strong culture and climate risks and opportunities,

including the requirements of the TCFD reporting framework. In

addition, key legislation updates, government consultations, best

practice and emerging themes were presented to the Committee

ateach meeting as part of a horizon scanning and consultations

paper. An induction plan for new Committee members will be

developed in early 2022-23.

Stakeholder engagement and reporting

The Committee is regularly briefed on feedback and dialogue

withthe Group’s stakeholders, including investors, customers

andregulators, and factors this information into its discussions

anddecision-making process.

During the year, the Committee reviewed and approved the

updatedGroup CR policy which sets out the standards to which

theGroup commits, as well as the standards expected of its

business partners and supply chain. The Committee recommended

to the Board that the Policy should be retitled ESG Policy, and its

content restructured to align with the Group’s ESG Principles.

In line with its responsibility to review and approve key public

disclosures, during the year, the Committee reviewed the 2021-22

Annual Report ESG content, the Royal Mail 2021-22 ESG Report and

the Group Modern Slavery Act Statement. These disclosures were

all recommended to the Board for approval.

Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

109

Strategic Report Corporate Governance

2022-23 priorities

Specific priorities for the Remuneration Committee (Committee) in the

forthcoming year, in addition to its usual scheduled activities, will include:

 Review of the Directors’ Remuneration Policy ahead of its renewal at the

Annual General Meeting in 2023.

 Review of Remuneration Committee advisers.

 Explore how workforce engagement can be strengthened in relation

tothedevelopment of executive remuneration policy.

 Review the ongoing alignment between the Group’s incentives

andanychanges in the strategic priorities of GLS and Royal Mail,

includingconsidering the future types of ESG measures in the

Group’sincentiveplans.

Committee membership, meetings and attendance

The table below shows the number of scheduled meetings each Director

attended, and the number of meetings they were entitled to attend during

theyear ended 27 March 2022.

Director Joined

Attendance

(scheduled

meetings)

Lynne Peacock

(Chair since 1 November 2019)

1 November 2019 5/5

Maria da Cunha 25 September 2019 5/5

Michael Findlay 25 September 2019 5/5

Keith Williams 4 February 2021 5/5

Dear Shareholder,

On behalf of the Board, I am pleased to present our 2021-22

Remuneration Report, my third and final as Chair of the Committee.

As announced in January2022, I shall be stepping down as

Committee Chair in July2022 when Iassume responsibility for

chairing the ESG Committee. Iam delighted that Maria da Cunha,

whohas been a Committee member since September 2019,

willsucceedme.

2021-22 has been yet another challenging and difficult year. It is,

therefore, important to set out in more detail relevant context

andinformation on the activities and decisions we have made

asaCommittee.

Setting the scene and the context within which

remuneration decisions have been made

The Committee remains acutely aware of the adverse impact that

the pandemic has had on our stakeholders, including customers,

shareholders, and broader society. This was, as last year, a factor

inthis year’s remuneration decisions.

 No direct UK Government pandemic support (such as the

receiptof furlough payments) was utilised by the Group during

the pandemic, although it is acknowledged that UK Government

intervention to support the economy has mitigated some of the

risks resulting from the pandemic.

 We have worked hard to deliver the most comprehensive

servicepossible to all our customers during the pandemic.

However, there have been a number of factors that have

impacted our service levels, including COVID-19-related

absence, meaning Quality of Service in Royal Mail has not been

as we would have liked. Absence increased over Christmas and

into early January 2022 to peak at around 12% (c.15,000 people),

double pre-pandemic levels. This has resulted in increased costs

and impacted Quality of Service in some areas of the country.

 Royal Mail remained a key partner for the UK Government’s

COVID-19 testing programme, continuing to deliver personal

protective equipment to care homes, GP surgeries and social

care providers. We continued to deliver and collect COVID-19

tests across the UK and we responded quickly to UK

Government requests to increase capacity for the delivery of

testing kits in December 2021 after the Omicron variant was

identified.

 In November 2021, the Board announced that it was returning

£400 million of capital to shareholders through a £200 million

share buyback and £200 million special dividend paid alongside

our interim dividend.

 As part of Royal Mail’s transformation programme, we began

aformal consultation in January 2022 on a reorganisation

tostreamline operational management to improve focus

onperformance at a local level. This is expected to deliver

a£40 million annualised benefit. However, this has resulted

inavoluntary redundancy charge of £70 million in 2021-22.

Projects such as these are always difficult as we lose colleagues

from the business and wehave taken all necessary steps to

ensure that the process isconducted sensitively, working

closely with impacted employees and their representatives.

Lynne Peacock

Chair

Royal Mail plc

Annual Report and Financial Statements 2021-22

110

Corporate Governance

Directors’ Remuneration Report

The Committee considered that the formulaic outcomes under the

respective scorecards for Executive Directors were reflective of the

underlying performance, and decided against exercising discretion

(positive or negative) beyond that outlined above.

This means that the respective payouts are:

Executive Director Scorecard

STIP payout

(asa%ofmaximum)

Mick Jeavons –

GroupCFO

Group 48.50%

Martin Seidenberg –

CEO GLS

GLS 95.00%

Simon Thompson –

CEORoyal Mail

Royal Mail 17.97%

In Royal Mail, members of its Executive Board share the same STIP

scorecard asthe CEO Royal Mail, meaning that the STIP payout for

them was 17.97%. In GLS, the Committee decided that STIP

payments shouldbe made to its Executive Board in light of the good

financialperformance during 2021-22: each of the area managing

directors in GLS have STIP scorecards which are aligned to their

individual areas of geographical responsibility.

Long-term incentive plan (LTIP)

The performance period for the 2019 Royal Mail LTIP concluded at

theend of March 2022. Only Mick Jeavons had a 2019 Royal Mail

LTIP.Following an assessment of the performance conditions, the

aggregate level of awards vesting is 100%, broken down as follows:

 Relative Total Shareholder Return (TSR): 100% vesting

(40%weighting).

 Group EBITDA: 100% vesting (40% weighting).

 Group parcel revenue: 100% vesting (20% weighting).

The Committee considered the outcome fair and appropriate in the

context of the Group’s wider performance over the last three years,

and decided against exercising discretion to alter this formulaic

outcome. The value delivered by the 100% vesting outcome and

included in the single total figure of remuneration is based on a

share price of £4.28 (the 13-week average to 27 March 2022)

compared with the share price at grant in 2019 of £2.06. This

increases the award outcome value by 107%.

Martin Seidenberg was granted cash and share-based GLS LTIP

awards prior to his appointment as an Executive Director. These

aresubject to GLS financial performance and in respect of the

performance period ending 31 March 2022 the awards vested in

full. The Committee felt this outcome fair and appropriate in the

context of the GLS’s good performance over recent years. More

information is set out on page 129.

Group performance

We made some good progress during the year:

 Group adjusted operating profit increased 8.0% year-on-year

to£758 million. Group revenue increased 0.6% to £12.7 billion,

with parcels making up 71% of Group revenue.

 GLS continued to perform well, driven by a combination of

higher volumes, better pricing and the contribution from the

Rosenau Transport business acquired in Canada. Revenue

increased by 4.4% to £4.2 billion (2020-21: £4.0 billion)

withrevenue in Germany, the largest GLS market by revenue,

growing by 8.1%. Revenue was driven by volume and price/mix,

but inflationary cost pressures resulted in a decline in adjusted

operating profit margin by 80 basis points to 8.1%. GLS adjusted

operating profit was £342 million, down 4.5% on 2020-21.

 Royal Mail revenue decreased 1.6% to £8.5 billion. This was

driven by a 6.5% decline in parcel revenue after a very strong

performance in the prior year as a result 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 £416 million (2020-21: £344 million) and adjusted operating

profit margin was 4.9%, up 90 basis points.

2021-22 remuneration outcomes

Short-term incentive plan (STIP)

In reviewing the formulaic outcome of STIP measures against the

targets set for Executive Directors, the Committee considered broader

aspects of the Company’s performance during the year, including the

outcomes for shareholders and customers as described above.

In terms of the Royal Mail STIP scorecard, financial measures

account for 75% of the potential payout. In assessing the profit

element under the scorecard, the Committee determined that it

was appropriate to exclude the £70 million cost of reorganisation

tostreamline operational management to reflect that the

restructure had not been envisaged at the time the target was set.

This resulted in an adjusted operating profit for STIP purposes of

£486 million. Notwithstanding the above, there was no payout

under the element of the scorecard for the CEO Royal Mail and

Group CFO, as threshold performance was not achieved. Revenue

performance resulted in an outturn above threshold.

Quality of Service levels in Royal Mail were not as we would have

liked in 2021-22. AsQuality of Service is one of the Royal Mail

scorecard measures, there isnopayout under this particular

measure as threshold performance was not achieved.

Financial performance in GLS were good and there was strong

progress against the non-financial measures (which had a 25%

weighting). This resulted in a payout between target and maximum

under the scorecard for the CEO GLS.

The Group CFO has a Group STIP scorecard with a combination of

GLS and Royal Mail financial measures (amounting to 75% of the

scorecard). Non-financial measures (ESG and strategic priorities)

made up the balance of the scorecard.

Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

111

Strategic Report Corporate Governance

Royal Mail actively helped to address potential financial hardship

for its colleagues and their dependants via the Rowland Hill Fund,

contributing £750,000 since April 2020 which has been used to

provide any required support. Financial education support also

continues to be made available.

In June 2021, Royal Mail reached an agreement with the CWU on

‘top up’ holiday pay arrangements for all colleagues at grades

represented by CWU within Royal Mail Group Limited. We recognise

that many colleagues perform regular overtime (over and above

scheduled attendance) and, with effect from April 2021, such

overtime will now be included in the calculation of holiday pay.

Board changes and implications for remuneration

Martin Seidenberg, CEO GLS, was made an Executive Director and

joined the Board on 1 April 2021. Details of his remuneration were

disclosed in last year’s Annual Report. The remuneration decisions

made in respect of his appointment were in accordance with the

Policy approved by the shareholders.

2022-23 executive remuneration

Executive Director salary changes

The Committee reviewed the salaries of its Executive Directors

inthe context of increases for the wider workforce.

The Committee decided to apply a 3.6% increase for UK-based

Executive Directors, effective 1 April 2022 in line with the 3.6%

effective increase in 2021-22 for frontline colleagues represented

by the CWU (who are the majority of the UK workforce), which

comprised a 1% increase and, following implementation of local

revisions, a reduction in the working week from 38 to 37 hours

aweek. An increase of 5.7% was agreed in respect of the CEO

GLS,Martin Seidenberg, who is based in continental Europe and

oversees GLS operations throughout Europe and North America.

The Committee noted that the weighted average salary increase

(effective April 2022) in GLS’ eight largest markets was 5.7%.

Pension arrangements

All Executive Directors receive a pension of 13.6% of salary, which

is aligned with the benefit that will be provided to all eligible

employees under the proposed Royal Mail Collective Pension Plan

which will be launched after all the relevant enabling regulations

have been passed and The Pensions Regulator has authorised the

plan. The 13.6% is less than the 15.6% of salary benefit currently

received by the majority of Royal Mail colleagues in the UK.

Continued use of ESG measures in our 2022-23 incentive plans

ESG-related measures are included within the STIP scorecard.

25%of the scorecard for the CEO Royal Mail and his management

team is based on health and safety, customer service and

environmental metrics.

Health and safety is an important priority for the Company and it,

together with customer service, has been a key measure in Royal

Mail’s incentive plans for a number of years (not just for the CEO

Royal Mail and his leadership team, but the broader management

population in the UK).

During recent months, the Committee reviewed emerging best

practice in relation to the use of ESG performance measures in

incentive plans and considered whether to adapt or extend the use

of ESG measures to our long-term incentive plans, with specific

environmental quantitative targets.

Total remuneration

Based on the above STIP and LTIP each Executive Director’s

2021-22 remuneration is shown below. The Committee believes

therespective single figures of total remuneration are appropriate

in the context of the wider stakeholder experience.

2021 LTIP grants

As outlined in the 2020-21 Annual Report, the Committee delayed

the grant of the 2021 LTIP awards until August 2021, due to the

uncertainty around the ability to set long-term financial targets.

The measures and targets were confirmed at the time of grant via

astock exchange announcement and full details of the targets are

set out in this report. The terms of these awards also provide the

Committee with the ability to review the outcome at vesting,

takinginto account the underlying performance of the Group.

Supporting colleagues during the pandemic and ensuring

fairness in their pay

Throughout the year we have supported our colleagues, prioritising

their wellbeing, safety and security.

Our UK colleagues are classified as key workers and form part of

the country’s essential infrastructure, keeping parcels and mail

moving during the pandemic. We prioritised putting in place interim

arrangements to mitigate the risks associated with this important

role, for example enhancing our employee sick pay provision and

updating our operating procedures to limit contact between

colleagues and customers.

Group CFO

M

ick Jeavons

£

’000s

T

otal 1,339

L

TIP 541

S

TIP 306

P

ensions/benefits

72

S

alary 420

C

EO GLS

M

artin Seidenberg

£

’000s

T

otal 1,669

L

TIP 393

S

TIP 703

P

ensions/benefits

80

S

alary

493

C

EO Royal Mail

S

imon Thompson

£

’000s

T

otal 753

L

TIP

S

TIP 142

P

ensions/benefits

86

S

alary 525

Royal Mail plc

Annual Report and Financial Statements 2021-22

112

Corporate Governance

Directors’ Remuneration Report continued

We look forward to continuing our discussions with investors

inthecoming months in the run up to this year’s AGM.

As the Policy is due for renewal in 2023, we anticipate engaging

with shareholders about any changes to our remuneration

approach in late 2022 and early 2023.

Consideration of the wider workforce views

In addition to its primary role of reviewing Executive Directors’

remuneration and the remuneration of other executives in GLS

andRoyal Mail, the Committee, and the Board more generally,

continue to exercise oversight of other colleagues’ remuneration.

The Committee takes into consideration pay policy across the

widerworkforce as part of its decision making on executive

remuneration. As in previous years, the Committee reviewed

thegender pay gap reporting and remuneration practices

acrossthe Group. In 2021-22 the ARC discussed the operation of

Royal Mail’s pension plans (all Committee members were invited

tothis session). As a Board, we also discuss details ofany pay

arrangements for the UK workforce represented by theCWU

andUnite/CMA.

The Board and the Committee recognise the importance of seeking

feedback from colleagues to inform decision-making in addition

tothe regular consultations members of the Royal Mail Executive

Board have with the CWU and Unite/CMA.

In April 2022, 69% of colleagues responded to the Royal Mail’s

annual trust survey, which sought to understand colleague

sentiment in respect of range of matters including a range of

people-related topics. Key insights are presented to the Royal

MailExecutive Boardand ESG Committee for discussion, and

teamresults shared with the workforce so that local action

planscan be developed. Maria da Cunha is Committee member

which allows any insights she has from her role as the designated

Non-Executive Director for engagement with the workforce, to

befed directly into Committee discussions.

Further information on our workforce engagement is included

onpages 26 and 90.

Summary

Our colleagues across the Group continue to work tirelessly

tosupport our customers during yet another challenging year.

AsaCommittee, we have sought to make decisions which

recognise their efforts, balanced with our desire to reflect

theGroup’s performance and an uncertain outlook.

I trust that you find the Remuneration Report clear and informative.

We hope that you will support our Remuneration Report at the

forthcoming AGM.

Lynne Peacock

Chair of the Remuneration Committee

18 May 2022

The Committee is aware of investor sentiment for ESG measures

tobe relevant to strategy, measurable and quantifiable. During

theyear, Royal Mail and GLS’ respective environmental strategies

were updated (see pages 32 and 33). In the coming year, the

Committee will consider whether to further amend the Group’s

incentive plans to align with the refreshed strategies. Such review

will form part of the broader review of the Directors’ Remuneration

Policy (the Policy) scheduled for renewal next year.

However, for the 2022-23 STIP the following changes are being

introduced:

 The CEO GLS and Group CFO will continue to have a 10%

weighting assigned to health and safety, mirroring that in Royal

Mail. However, a safety measure has been extended to GLS

executives for the first time as part of their STIP arrangements.

 The CEO GLS and his leadership team will have a 7.5% weighting

assigned to sustainability.

2022 LTIP awards

The measures that will apply to the 2022 LTIP awards are set out on

page 137. These follow the principle of ensuring that Executive

Directors are incentivised to deliver the key long-term priorities

relevant for their role, with 40% of the award based on Group TSR

to ensure alignment with overall Group performance.

The Committee wishes to ensure that financial targets for the 2022

LTIP awards are set appropriately in the context of an uncertain

outlook especially relating to the impact of ongoing geopolitical

uncertainty in Europe and the status of pandemic restrictions in our

markets. Giventhis continuing uncertainty around the long-term

business environment, the Committee has agreed to delay the

target setting for these awards. The associated targets will be

therefore confirmed atthe time of grant via a stock exchange

announcement. The grant ofthe 2022 LTIP awards is likely to be

made no later than August2022.

At 27 March 2022, the Company’s share price was 360.10 pence,

which compares to the 2021 LTIP grant price of 500 pence: a

reduction of 28%. However, over the last two financial years until

27 March 2022, the share price has been as low as £1.46 and the

average share price during this period was £3.76 and therefore

thecurrent share price is within the range over this period. As the

stock markets remain unsettled in light of the on going geopolitical

environment, the Committee will monitor share price performance

up to the point of grant of the 2022 LTIP to ensure award levels are

appropriate. As in previous years, the Committee will retain the

discretion to review vesting outcomes to ensure that these are

reflective of the underlying performance during the period.

Shareholder engagement

We remain committed to maintaining an open and transparent

engagement with our shareholders. We were very pleased that

theRemuneration Report was very strongly supported in July 2021,

withover 99.7% voting in favour. This was on the back of the

strongendorsement of our Policy by shareholders in September

2020. Iwould like to thank shareholders again for their constructive

feedback over recent years (including during the adoption of the

former policy in 2019), which continues to feed into our Committee

discussions and shape our approach to remuneration.

Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

113

Strategic Report Corporate Governance

2022-23 Executive Directors’ remuneration structure

The table below summarises the implementation of the Policy for Executive Directors in 2022-23.

Financial year 2022-23 2023-24 2024-25 2025-26 2026-27 Implementation for 2022–23

Salary

 Mick Jeavons – £435,000.

 Martin Seidenberg – €613,050.

 Simon Thompson – £543,750.

 Salaries may be reviewed during the year.

Benefits

 No change in how Remuneration

Policyoperated.

 Pension contribution and or allowance 13.6%.

 Other benefits may include healthcare and

car allowance (or car).

STIP

Performance

Period

Deferral period

Malus and clawbackprovisions apply

 Maximum remains 150% of salary

(100%cash and 50% deferred in shares

forthree years).

 Target 75% of salary (50% cash and

25%shares).

 Measures 75% financial and 25% ESG

orother strategic priorities.

LTIP

Performance period

Malus provisions apply

Holding period

Clawbackprovisions apply

 Maximum remains 150% of salary.

 Shares vest after three years subject to

performance, with a further two-year

holdingperiod.

 Relative TSR 40% and financial

measures60%.

Royal Mail plc

Annual Report and Financial Statements 2021-22

114

Corporate Governance

Our Remuneration at a Glance (unaudited)

Our remuneration approach is aligned to our strategy, thereby

incentivising, as appropriate, great customer service and the

creation of long-term value for all of our stakeholders.

The following table provides a summary of how our incentive

framework in 2022-23 is aligned with our business strategy and

theresults that it delivers. Many of the incentive measures are

keyperformance indicators (KPIs) (see pages 24 and 25).

Executive Directors’ variable remuneration in 2021-22

As a result of the Company’s FY2021-22 performance (against financial, ESG and strategic measures), STIP awards are payable to

Executive Directors as shown below. The Committee considered that these outcomes were appropriate in the context of the Group,

GLSand Royal Mail’s overall performance and that of the Executive Directors during the year.

The performance period for the 2019 RM LTIP concluded at the end of March 2022. The outcome is shown below and more details on the

progress against individual measures is show on pages 127 and 128.

M Jeavons M Seidenberg S Thompson

2021-22 RM STIP (% of salary) 72.8% 142.5% 27.0%

2019 RM LTIP vesting (% of salary) 100% N/A N/A

Executive Directors’ total single figure of remuneration M Jeavons M Seidenberg S Thompson

2021-22 total remuneration (£’000s) 1,339 1,669 753

Aligning our remuneration approach to business strategy

and stakeholder interests

To generate value for stakeholders, we are focused on building

amore balanced and diverse parcels-led, international business.

Recognising that Royal Mail and GLS have different market

positions, strengths and opportunities, we have developed

separatestrategies to drive sustainable growth in each

businessand at all times meet changing customer needs.

Financial measure ESG measure Other measure

RM profit/

GLSEBITA

RM revenue/

parcel revenue GLS cashflow

RM service

quality

Health

& safety Environmental

Relative

TSR

Individual

priorities

Short-term

incentiveplan

     

Long-term

incentiveplan

   

Link to strategy

Royal Mail

GLS

Strategic icon key

Royal Mail GLS

Customer Connect Europe

Trust

Strengthen 2C parcel market

position and lead in 2B

Growth Inspire the market

The Committee believes that its executive remuneration policies and practices support the respective strategies in Royal Mail

andGLS and promote long-term sustainable success, with reward linked to the successful delivery of such long-term strategy.

Theremuneration, including incentive arrangements for the respective executive teams, is aligned to our purpose and values (see

page 2), with a focus on customers and other stakeholders an integral part of our executive remuneration approach.

Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

115

Strategic Report Corporate Governance

Additional information Percentage/Ratio

UK CEO (and other Executive Directors) shareholding requirement (% of salary) 200%

UK CEO’s actual shareholding as a proportion of his salary (note: appointed 11 January 2021) 9.6%

Mean gender pay gap +1.4%

Mean gender bonus pay gap -5.1%

CEO pay ratio 23:1

How does our Directors’ Remuneration Policy address the key features set out in the UK Corporate Governance Code?

The table below details how the Committee addressed Provision 40 of the Code in respect of Directors’ remuneration:

Provision Approach

Clarity

 The Committee undertook extensive shareholder engagement during the development of its Remuneration Policies in 2019 and 2020,

and redesigned the relevant annual reports to ensure that both the changes to the Policy, and decisions taken on Directors’ pay,were

transparent and in line with best practice.

 The Committee consults annually with shareholders to seek their views on the operation of the Policy in the year.

 Information on how remuneration is structured for all employees and how it is aligned to Directors’ remuneration is included in the

Directors’ Remuneration Report.

Simplicity

 The Policy consists of a) fixed remuneration and b) variable remuneration comprising one Short-Term Incentive and one Long-Term

Incentive only. The objective of each element, as well as how they operate, is included in the Policy.

 The Short-Term Incentive Plan was simplified as part of the Remuneration Policy adopted in 2019, including a reduction in the number

of measures, with links to our strategic objectives clearly set out.

Risk

 The combination of reward for short-term business performance, paid partly in cash and partly in deferred shares, and long-term

performance, with incentive measures covering shareholder returns, financial and non-financial elements, ensures that the

incentives drive the right behaviours for the Group, its shareholders, employees and customers. Incentive plans include non-financial

risks such as health and safety and environmental protection.

 Our incentive plans are also subject to malus and clawback provisions.

Predictability

 Threshold, target and maximum pay scenarios are set out in the Remuneration Report section.

 Maximum variable remuneration award levels are capped. Other than vesting levels, which are driven by performance outcomes,

theonly source of variation in final payouts is the fact that part of the variable remuneration is awarded in shares and so is linked

tothe share price.

Proportionality

 There is a clear and direct link between business performance and individual rewards through our incentive plans.

 The Committee retains the discretion to adjust formulaic outcomes of incentive plans if they do not reflect the underlying

performanceof the Group.

Alignment

withculture

 The Committee has worked hard to design the Remuneration Policy that directly supports our strategic priorities, and aligns our

Directors and wider management to these outcomes.

 Our incentive plans include both financial measures and ESG measures. These ESG measures focus on our customers, health and

safety and environment.

 All Royal Mail managers’ individual performance is considered against our Company values: be positive, be brilliant, be part of it.

Therefore, we assess our managers against not only what they have achieved, but also how theydothings.

In accordance with Code Provision 41, the Directors’ Remuneration Report describes the work of the Committee, including those areas

mentioned in that Provision. The table below highlights some of those areas:

Provision Approach

Operation of policy

 The Committee believes that the Remuneration Policy operates as intended in terms of Company performance and the quantum of

remuneration delivered.

Shareholder

engagement

 We undertook substantial engagement with our shareholders as part of the development of a new remuneration policy in 2019 and

then again in the run up to the 2020 AGM when we made further changes to the policy. We are grateful for this feedback and input

received over the last 36 months that has shaped our thinking and decision making.

 During 2021-22, we consulted leading investors in the run up to the AGM on our remuneration approach and prior to the end of the year

we provided an update on executive remuneration matters to our 15 largest investors (who represented over 60% of our share

register), inviting their feedback.

Workforce

engagement

 An outline of our approach to workforce engagement in set out on pages 26 and 90.

 The Committee will be exploring in the coming years how such engagement can be strengthened in relation to the development

ofexecutive remuneration policy.

Royal Mail plc

Annual Report and Financial Statements 2021-22

116

Corporate Governance

Our Remuneration at a Glance (unaudited) continued

The Company’s Remuneration Policy was approved by 99% of shareholders at the AGM on 8 September 2020. The following tables

summarise the key elements of our Remuneration Policy. The Policy is not subject to a shareholder vote this year. The Policy is set

out in full on pages 133 to 140 of the Annual Report and Financial Statements 2019-20.

Executive Director fixed remuneration

At a glance Operation

Base salary

Purpose and link to strategy

Reflects the scope and responsibility of the role, while taking account of the skills and experience of the individual. Used to attract

and retain talented executives to deliver the business strategy.

M Jeavons (Group CFO) – £435,000

M Seidenberg (CEO GLS) – €613,050

S Thompson (CEO Royal Mail) – £543,750

Salary levels for the Executive Directors are normally reviewed annually. The

Committee takes into account factors such as the performance of the Company,

theperformance of the Executive Director, any changes in role and responsibility,

assessment against relevant comparator groups, internal relativities and the level

ofincrease being offered to our frontline employees.

Increases will normally be in line with the broader employee population. Increases

may be made above this level to take account of changing circumstances, such as

achange in responsibility, progression in the role, individual performance or a

significant increase in the scale or size of the role.

Benefits

Purpose and link to strategy

To support the attraction and retention of talented executives by providing a competitive offering.

The value of the benefits stated is the

maximum cost to the Company of

providingthem

Benefits currently include the provision of a company car and health insurance, or

thecash equivalent of these benefits. Life assurance and health screening are also

provided. Additional benefits may be offered such as financial advice and relocation

allowances on recruitment.

UK based Executive Directors are entitled to participate in any SIP or SAYE schemes

currently available to employees.

Where an Executive Director is based outside the UK, but is required to travel to the

UK to fulfil the responsibilities of their role and to attend Board meetings, they may be

subject to tax on their business travel expenses to and from the UK and on the

provision of any accommodation in the UK. Although in reality it represents a business

expense, the tax treatment requires that their travel and accommodation expenses

are then included as benefits. Because of the business context, the tax liabilities will

be covered by the Company on a grossed-up basis.

Pension

Purpose and link to strategy

To provide a competitive post-retirement income.

For newly appointed Executive Directors

thepension allowance will be in line with

employer contribution for the majority

oftheworkforce

Company contribution to a defined contribution pension scheme and/or a cash

supplement (in lieu of pension).

Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

117

Strategic Report Corporate Governance

Directors’ Remuneration Policy (unaudited)

Executive Director variable remuneration

At a glance – maximum opportunity Operation Performance measures

Short-Term Incentive Plan (or annual bonus)

Purpose and link to strategy

Designed to reward achievement of key strategic, financial and operational priorities for the year to deliver strong performance in

service of longer-term strategic goals and creation of long-term shareholder value. Part of the total annual incentive opportunity is

a deferred share award encouraging a long-term view, providing alignment with shareholders’ interests.

Maximum total annual incentive

opportunity of 150% of salary,

split between two plans: an

annual cash bonus award of up

to100% of salary and a deferred

share bonus award of up to 50%

of salary. Target opportunity of

75% of salary.

The total annual incentive opportunity

isprovided as follows:

 Two thirds is payable in cash, paid at the

endof the annual performance period.

 One third is granted as a deferred share

award, after the end of the performance

period and subject to continued employment

over the three-year vesting period.

Deferred share awards will be granted to

Executive Directors in the form of a conditional

share award. The Committee will normally

award dividend equivalents on deferred shares

to plan participants to the extent that they vest.

Malus and clawback provisions will apply to

both elements of the award.

Annual performance measures and weightings

will be selected at the start of each financial

year to align with the key strategic, financial

and operational priorities of the business. The

measures themselves may change on an

annual basis as financial and operational

priorities of the business change.

In addition, the Committee will set a minimum

level of earnings that must be achieved (which

may be at a Group or an appropriate business

unit level) before any bonus is payable to an

Executive Director.

The Committee may use its discretion to:

 Change the performance measures and targets, and the weighting attached to the performance measures and targets part way

through a performance year if there is a significant and material event which causes the Committee to believe that the original

measures, weightings and targets are no longer appropriate.

 Make downward or upward movements to the amount of bonus earned resulting from the application of the performance

measures, if the Committee believes that the bonus outcomes are not a fair and accurate reflection of business performance.

Long-Term Incentive Plan

Purpose and link to strategy

Supports executive recruitment and retention, with an appropriate balance between short-term performance and the creation

oflong-term, sustainable shareholder value.

Maximum award level of

150%ofsalary.

Awards are granted annually to Executive

Directors in the form of a conditional

shareaward.

These will vest at the end of a three-year

periodsubject to:

 The Executive Director’s continued

employment at the date of vesting.

 The satisfaction of the performanceconditions.

The Committee will normally award dividend

equivalents on those shares to the extent that

theyvest. Following the vesting, there is a holding

period of two years when Executive Directors

cannot sell the vested shares other than to pay tax.

Malus provisions apply over the performance

period. Clawback will apply over the

holdingperiod.

Performance measures and/or weightings

reflect the business strategy at the time and

are measured over or at the end of three years.

The Committee may change the balance of the

measures, or use different measures for

subsequent awards, as appropriate.

The underlying performance of the business

will also be taken into account when

determining the vesting.

In exceptional circumstances the Committee retains the discretion to vary or waive the performance conditions applying to LTIP

awards, if the Board considers it appropriate and the new performance conditions are deemed reasonable and are not materially

more or less difficult to satisfy than the original conditions.

Royal Mail plc

Annual Report and Financial Statements 2021-22

118

Corporate Governance

Directors’ Remuneration Policy (unaudited) continued

Application of malus and clawback

At a glance – maximum opportunity Operation

Malus and clawback may be

applied by the Committee

intheevent of:

i. Discovery of a material misstatement resulting in an adjustment in the Company’s accounts.

ii. Discovery that the grant or vesting of an award was based on error or inaccurate or

misleading information.

iii. Conduct by an Executive Director that amounts to fraud or gross misconduct.

iv. Conduct by an Executive Director that results, or could result, in serious reputational damage

to the Group.

v. Conduct by an Executive Director that has caused a material failure of risk management.

vi. The Company enters involuntary administration or insolvency process.

vii. An Executive Director breaching any restrictive covenants or confidentiality obligations that

apply after the termination of their employment.

Events iv) to vii) only apply to awards granted after 1 April 2019.

Shareholding guidelines – during employment

Purpose and link to strategy

To ensure alignment between remuneration and long-term shareholder value creation.

Shareholding guideline

of200%of salary.

Executive Directors are expected to keep any shares they already own and any shares released

under the LTIP and the Deferred Share Bonus Plan (DSBP) (except for those sold to cover any tax

and social security obligations) until this is achieved.

Shareholding guidelines – post cessation

Purpose and link to strategy

To ensure continued alignment of Executive Directors with shareholders as they transition out of the business.

200% of salary to be held in

granted shares for two years

after leaving.

On cessation, Executive Directors are required to maintain their shareholding guideline for two

years. The number of shares to be held will be based on the shares vested under executive share

schemes only (including the shares from any DSBP award that are yet to vest, based on a net

calculation) and will be determined by the share price on the date of cessation. If an Executive

Director has not yet reached the 200% of salary guideline at the point of departure, they will be

required to hold any shares granted under executive shares schemes for two years. The post

cessation shareholding requirement will be included in Settlement Agreements for Executive

Directors on leaving the business.

Information on remuneration for new Executive Directors, what happens when an Executive Director leaves, or what happens

incase of a takeover is included in the full Policy, published in last year’s Annual Report and Financial Statements for 2019-20.

Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

119

Strategic Report Corporate Governance

Remuneration Policy for Non-Executive Directors (including the Chair of the Board)

At a glance Operation

Purpose and link to strategy

Provides a level of fees to support recruitment and retention of Non-Executive Directors and a Chair of the Board with the necessary

experience to fulfil the leadership role required of them.

Non-Executive Directors

arepaid an annual fee and

additional fees for being Chair

ofa Committee or a member

ofa Committee and, if

appropriate, other additional

time commitments.

The Chair of the Board does not

receive any additional fees for

membership of Committees.

The Board is responsible for setting the remuneration of the Non-Executive Directors.

TheRemuneration Committee is responsible for setting the Chair of the Board’s fees.

The fees for Non-Executive Directors and the Chair of the Board are set at broadly the

medianofthe comparator group. Fees are reviewed annually based on equivalent roles in the

comparator group used to review salaries paid to the Executive Directors. In general, the level

offee increase for the Non-Executive Directors and the Chair of the Board will be set taking

account of any change in responsibility and will take into account the general rise in salaries

across the UK workforce.

The Company will pay reasonable expenses incurred by the Non-Executive Directors and the

Chair of the Board and may settle any tax incurred in relation to these. Non-Executive Directors

and the Chair of the Board do not participate in any variable remuneration or benefits

arrangements.

Service contracts and letters of appointment

The Company’s policy is that the Executive Directors are employed

under service contracts. The contracts have an indefinite term and

are normally terminated by the Executive Director with six months’

written notice and by the Company with 12 months’ notice. Copies

of the Executive Directors’ service contracts will be available for

inspection at our forthcoming AGM.

Subject to Board approval, it is the Company’s policy to allow each

Executive Director to accept one Non-Executive Director position

on the board of another listed company. The fees for such

appointments are retained by the Executive Directors and, as

appropriate, are disclosed in the Remuneration Report.

The Non-Executive Directors (including the Non-Executive Chair

ofthe Board) are appointed by rolling letters of appointment.

TheNon-Executive Directors are appointed for up to three years,

subject to annual review and re-appointment. The fees for new

Non-Executive Directors appointed will be set in accordance with

the terms of the approved Remuneration Policy in force at the time

of appointment. One month’s notice is required by either party

(fourmonths’ notice in the case of the Chair of the Board).

Royal Mail plc

Annual Report and Financial Statements 2021-22

120

Corporate Governance

Directors’ Remuneration Policy (unaudited) continued

The Committee is directly responsible for the remuneration of the Executive Directors and respective Royal Mail and GLS Executive

Boards. The Committee is also given regular updates and, as required, takes key decisions on incentive plans that cascade through

the organisation. The Committee takes changes in workforce remuneration into account when making decisions on executive

remuneration. A summary of remuneration across the Royal Mail organisation is set out below.

Operational Managers Senior managers Senior leaders

Salary Based on role, location

andservice, progression

typically based on service.

Salary increases

negotiated with the CWU

and applied to the pay

scales. No personal

orperformance-

relatedelement.

Middle and junior

managers typically have a

similar fixed pay structure

to operational colleagues,

with pay scales that they

progress through based

onservice.

Pay based on the role and

an individual’s experience

and skills, within

broadbands.

Pay based on the role and

an individual’s experience

and skills, and external

market positioning.

Allowances

andovertime

Eligible for allowances

(including functional, shift

and legacy allowances),

overtime and scheduled

attendance (a form of

planned overtime).

Some roles at this level are

also eligible for shift pay,

overtime and allowances.

Not eligible. Not eligible.

Pension The majority of employees are members of the Royal Mail Defined Benefit Cash

Balance Scheme (DBCBS), with a Royal Mail contribution at 15.6% of salary, into

which participants transferred after the closure of the final salary pension plan.

New hires are eligible for the Royal Mail Defined Contribution Plan (DCP), with

Company contributions up to 10% of salary.

However, on the launch of the new Royal Mail Collective Pension Plan, all eligible

colleagues will participate in this plan (rather than the current DBCBS and DCP).

Company contributions will be up to 13.6% of salary.

Option of cash allowance

in lieu of Company

contributions.

Benefits Employee paid for flexible benefits (e.g. childcare

vouchers, cycle to work scheme, car leasing,

insurances, season ticket loans) and all employee

shareplans.

Car allowance and healthcare, in addition to employee

paid for flexible benefits and all employee share plans.

Short-term

incentive

(STIP)/bonuses

Eligible for a ‘Christmas

Supplement’ reflecting

their huge effort and

impact during our busiest

period. Not linked to

personal performance.

Managers are eligible for a management STIP based

oncorporate and personal performance.

Eligible for annual

management STIP with a

cash and deferred share

element based on

corporate and personal

performance.

LTIP Not eligible. Not eligible. Not eligible. Royal Mail Executive

Board eligible.

Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

121

Strategic Report Corporate Governance

All Employee Remuneration (unaudited)

0% 100%90%

Variable (at target)Fixed

80%70%60%50%40%30%

43.1%

20%10%

Illustration of typical split of fixed and variable remuneration

Executive

Director

Senior leader

Senior manager

Manager

Operational

99.1%

91.7%

85.9%

65.4%

56.9%

0.9%

8.3%

14.1%

34.6%

Alignment between our approach to Directors’

remuneration and other colleagues

In developing the 2019 Remuneration Policy and the subsequent

updated Remuneration Policy in 2020, the Committee carefully

considered the remuneration arrangements across the Group. The

Committee receives information on wider workforce demographics

and remuneration on a regular basis, to ensure that the Committee

has a good understanding of the structure and application of

reward policies throughout the Group.

The Committee has agreed a set of Guiding People Principles for

Royal Mail, against which it can assess the Company’s reward

arrangements. Across the Group we are working towards reward

arrangements that:

 Deliver both value for our people and a return on investment for

the business.

 Incentivise and recognise high performance.

 Are aligned with the markets in which we operate and compete.

 Drive efficiencies by taking a consistent cross-

businessapproach.

 Are well communicated, holistic and understood by our people.

When making decisions about executive remuneration, the

Committee ensures, for example, that pay review budgets for Royal

Mail executives are typically set at levels which mirror those being

applied for managerial populations which in turn are set in the

context of pay levels agreed with our trade unions for employees

whose pay is collectively bargained. In addition, the different

incentive and commission plans in operation across Royal Mail

support the delivery of the Company-wide priorities which are part

of the STIP, through which the Executive Directors are incentivised.

The broader workforce did not have direct input into the Policy, but

its application is heavily influenced by remuneration arrangements

for all employees. As well as being a Committee member, Maria da

Cunha is also the Designated Non-Executive Director for engagement

with the workforce, which allows any key themes from employee

engagement activity to be fed into Committee discussions. Further

information about our workforce engagement activities is set out

on pages 26 and 90.

Board level oversight of all employee remuneration

During the year, the Committee received updates on key activities

and discussed material changes to all employee remuneration

policies and arrangements. There was also a detailed overview

ofhow frontline remuneration is structured and managed in

RoyalMail.

In addition, the ARC was updated on proposals to implement a

Collective Pension Plan and the Boarddiscussed remuneration

arrangements in respect of theworkforce represented by both

theCWU and Unite/CMA.

The chart shows an indicative summary of the relationship between

fixed and variable pay across Royal Mail. There is no discretionary

performance-related pay for operational roles. Colleagues at this

level influence their remuneration through working additional, or

antisocial, hours.

All our managers have an element of performance-related pay –

with Executive Directors having the highest proportion of their

payat risk.

Transforming company car provision

Royal Mail announced in July 2021 its 2025 roadmap for the

decarbonisation of its company car and business mileage

allowances policies. These changes are part of Royal Mail’s

commitment to reduce its environmental impact and achieve

net zero by 2040 and should ensure we deliver an all-electric

company car fleet by 2030.

The roadmap consists of three key dates:

 1 October 2021: from this date, the 1,500 most senior

managers have only been able to order EVs through

MyDrive.

 1 April 2023: from this date, only hybrid and electric

vehicle (EV) cars will be available to order through

MyDrive (Royal Mail’s all employee salary sacrifice car

plan). Business mileage reimbursed (in a private or

company car) will only be available at the appropriate

hybrid and EV rates even if the vehicle is diesel or petrol.

 1 April 2025: from this date, only EVs will be available to

order through MyDrive. Business mileage reimbursed

(ina private or company car) will only be available at

appropriate EV rates.

We are delighted with the uptake since the announcement

last summer, with the CEO Royal Mail participating in the

plan. Colleagues are able to acquire a company car (leased

with our partner, Zenith) through our salary sacrifice

arrangement. As at March 2022, there were 3,167 company

cars in the fleet, of which 620 were EV. Of the orders placed

between October 2021 and March 2022, 83% were EV.

Royal Mail plc

Annual Report and Financial Statements 2021-22

122

Corporate Governance

All Employee Remuneration (unaudited) continued

A negative percentage means the gap is in favour of females

whereas a positive percentage means a gap in favour of males.

While we are pleased that our gender pay gap reporting shows

thatthe Company has no significant pay gap, we continue to focus

on improving the representation of women at all levels of the

organisation. Our gender strategy focuses on attracting, retaining

and developing female talent at all levels of the organisation. We

have female representation and recruitment targets for operational

roles, as well as a wide range of initiatives in place to achieve them.

CEO pay ratio

The CEO pay ratio is set out below, as required under the Large

andMedium-sized Companies and Groups (Accounts and Reports)

Regulations 2008 (Regulations), with the required explanation,

andfurther contextual information in relation to methodology and

assumptions used. The CEO pay ratio for 2019 and 2020 is based

onthe remuneration of the former Group CEO. Since 2021 it has

been based on the remuneration of the CEO Royal Mail.

Year Method

25th percentile

pay ratio

50th percentile

pay ratio

75th percentile

pay ratio

2022 Option A 26:1 23:1 20:1

2021 Option A 22:1 20:1 17:1

2020 Option A 31:1 28:1 24:1

2019 Option A 28:1 26:1 22:1

Most frontline colleagues in the UK are eligible, as part of their

agreed contractual terms, to receive up to £200 payable at

Christmas. This means we pay incentives (as defined under the

gender pay gap regulations) to the vast majority of our employees:

in 2021, 98% of men and 98% of women received bonuses (in 2020,

this was 98% and 96% respectively). Those who are ineligible have

typically not reached the minimum service requirement or not

obtained a minimum personal performance threshold. In the year

to April 2021, on a median basis bonuses were slightly higher for

men but in favour of women on a mean basis (i.e. –5.1% in 2021).

Year-on-year, there was a reduction in the mean bonus gap in

favour of women. Two reasons for the year-on-year movement

inthe bonus gap were, firstly, the one-off COVID-19 recognition

payment paid toall staff (other than senior leaders) in July 2020

and, secondly, lower discretionary bonus payments to senior

managers and senior leaders: there is a higher proportion of

women in senior managerial positions, compared with the

operational population.

2021

Total

pay gap

Bonus

gap

Mean 1.4% -5.1%

Median 3.0% 7.9%

Gender pay gap reporting

The Company’s 2021 Gender Pay Gap Report, published during 2021-22, continues to show that average pay for men and women is broadly

the same. On a median basis, our gender pay gap is 3.0%. This compares with a national average gender pay gap on a median basis of

15.4% across all industries, calculated by the Office of National Statistics (ONS) in October 2021. On a mean basis, the pay gap has fallen

fora second consecutive year to1.4%.

We expect to see small changes in the total pay gap each year due to changes in the composition of the workforce, and the payment

ofallowances and shift pay, which can vary between men and women year-on-year as shown below.

Gender pay gap – multi year view

Royal Mail and national average (ONS survey)

18.00%

10.00%

12.00%

14.00%

16.00%

0.00%

2019 2020 2021

2.10%

1.90%

1.40%

3.50%

2.60%

3.00%

17.00%

15.50%

15.40%

2.00%

4.00%

6.00%

8.00%

National average pay gap (ONS)

Royal Mail mean pay gap

Royal Mail median pay gap

Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

123

Strategic Report Corporate Governance

Illustrative pay ratios based on different remuneration outcomes for the CEO Royal Mail

Median employee pay

versus UK CEO’s 2021-22

fixed remuneration

Median employee pay

versus UK CEO’s actual

2021-22 remuneration

Median employee pay

versus UK CEO’s 2021-22

target remuneration

Median employee pay versus

UK CEO’s 2021-22

maximum remuneration

0% 80%60%40%20% 70%50%30%10%

67

43

23

19

because he joined towards the end of the financial year. Although

the amount of the STIP was significantly less than target, the STIP

payment has the effect of increasing the ratio to 23:1.

The Committee is satisfied that the individuals identified within

each relevant percentile appropriately reflect the employee

payprofiles at those quartiles and that the overall picture

presentedbythe ratios is consistent with our pay, reward

andprogression policies.

Pay relativities are just one of many factors that we take into

consideration in developing a fair remuneration framework

inRoyalMail.

We have also detailed the potential ratios based on the CEO Royal

Mail’s theoretical fixed, target and maximum pay as set out in

thePolicy. It is important to note that a high proportion of the CEO

Royal Mail’s pay is based on performance against the short- and

long-term incentive plans, and that payouts can vary significantly

year-on-year, affecting the ratio going forward.

The table below sets out the salary, full pay and benefits value

received by UK employees identified at the 25th, 50th and 75th

percentiles, during 2021-22. There are over 83,000 operational

colleagues on the salary of £23,884 on a full-time equivalent basis

across the business. The difference in total pay and benefits is due

to the different allowances, overtime, shift payments and pension

arrangements received by these employees during 2021-22.

2021-22 25th percentile 50th percentile 75th percentile

Salary £23,884 £23,884 £23,946

Total pay and benefits £28,803 £32,465 £38,388

There has been a small percentage point increase in the pay ratio

between 2020-21 and 2021-22.

The primary reason for this is the increase in the CEO Royal Mail’s

remuneration in 2021-22. The headline amount of fixed

remuneration for the CEO Royal Mail is unchanged year-on-year.

However, he received a STIP payment in respect of 2021-22 in

contrast to 2020-21 when no STIP was payable, as he was ineligible

Royal Mail plc

Annual Report and Financial Statements 2021-22

124

Corporate Governance

All Employee Remuneration (unaudited) continued

How we have calculated our pay ratios

Under the Regulations, companies are required to identify the employee with pay and benefits at the 25th, 50th and 75th percentiles

of all UK employees for the relevant financial year and compare with the total remuneration of the CEO as set out in the single figure

oftotal remuneration table.

The Company has chosen to use Option A to identify the employees at the 25th, 50th and 75th percentiles and their respective pay

and benefits, as it is recognised that this is the most accurate approach. All UK employees as at year end have been included in

thereporting, with employees ranked based on their 2021-22 remuneration. The data assumptions included in our reporting are

setoutbelow:

Element Description

Base salary The Regulations require that full-time equivalent salaries are used to identify P25, P50 and P75 in order to

ensure comparability across Royal Mail. At Royal Mail, over 47,000 colleagues work part-time, primarily

inoperational roles, and may have working hours changes through the year. We have, therefore, used the

full-time equivalent salary, as at year end, as the salary figure to rank our employees.

Allowances and

overtime

This includes a range of functional, shift, location, role-based allowances, and overtime, included on an actual

basis (not pro-rated for part-time colleagues, or annualised for new starters).

Taxable benefits Taxable benefits included are car allowance and healthcare.

Employer pension

contributions

Actual employer pension contributions have been included (not pro-rated for part-time colleagues or

annualised for new starters).

Incentives The Regulations require that incentives relating to the relevant financial year are included. In some cases,

thedecision on the level of bonuses and LTIP vesting is not made until after the publication of this report.

The calculation also includes:

 A projected short-term incentive plan payment for frontline managers and other managers payable

inJune2022.

 Payments of up to £200 to frontline colleagues made annually before Christmas.

 The projected value of awards vesting under the 2019 Royal Mail LTIP based on a performance outcome

of100% and a share price of £4.28 (being the 13-week average to 27 March 2022).

Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

125

Strategic Report Corporate Governance

This part of the Directors’ Remuneration Report sets out how the Policy has been applied for 2021-22. This detailed information,

setout below, has been audited by the Company’s independent auditor, KPMG LLP.

Single figure table – Executive Directors (audited)

£’000 Salary

2

Benefits

3

Pension

5

Total fixed

Short-term

incentive

6

Long-term

incentive

7,8

Total variable Total

2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021

Mick Jeavons 420 94 15 3 57 13 492 110 306 0 541 0 847 0 1,339 110

Martin Seidenberg

1,4

493 – 13 – 67 – 573 – 703 – 393 – 1,096 – 1,669 –

Simon Thompson 525 117 15 3 71 16 611 136 142 – – – 142 0 753 136

Notes

1. Martin Seidenberg’s remuneration in the table above reflects the period from his appointment as an Executive Director on 1 April 2021.

2. The Committee reviewed the Executive Directors’ salaries and decided against making any increases during 2021-22 as the salaries had only recently been reviewed on their respective

appointments to the Board.

3. Benefits in the case of UK-based Executive Directors include healthcare provision with notional annual premium of up to £2,300 and the cash allowance of £13,160 which can be used to fund

(under a salary sacrifice arrangement) the lease of an electric company car. Martin Seidenberg is based in Germany and has elected to take a company car, which had an annual cost of €15,203.

4. Under the Remuneration Policy the Company may provide to Executive Directors, in certain circumstances, additional benefits, including covering additional tax incurred by a non-UK-based

Executive Director when performing their duties outside their home country (such as visiting the UK for Board or other meetings) to ensure they are not subject to a greater tax burden as a

result. At the time of this report, Martin Seidenberg’s relevant country tax returns covering the period to 31 March 2022 had not been finalised. If the Company has to make additional payments

in respect of related tax liabilities for this period, details will be disclosed in next year’s Annual Report.

5. For 2021-22, the pension amount shown for Mick Jeavons and Martin Seidenberg was paid as a cash allowance in lieu of pension. For Simon Thompson, up to £4,000 (on an annualised basis)

was paid into the Royal Mail Defined Contribution Plan, with the balance paid as a cash allowance.

6. Any STIP has one third deferred into shares subject to continued employment for three years. No further performance conditions are attached. Details of the 2021-22 STIP outturn are set out on pages 127

to 129.

7. Mick Jeavons’ RM 2019 LTIP has a 100% performance vesting outcome (see page 129 for more detail). Based on a share price of £4.28, the 13-week average to 27 March 2022, the estimated

value of the 2019 LTIP to be delivered to Mick Jeavons is £540,795. As the grant price was £2.06, the amount relating to share price appreciation is £280,506 (see below). The final value will be

restated in the 2022-23 Directors’ Remuneration Report based on the share price at vesting in August 2022.

8. The 2022 LTIP figure shown for Martin Seidenberg relates to historic grants under the GLS LTIP with performance period(s) ending in 2021-22. More information on the GLS LTIP is shown on

page 129. There is no element attributable to share price appreciation for the 2019 GLS LTIP as this is a cash-based award. Part of the 2020 LTIP is delivered in shares. Based on a grant price of

£1.8002 and a 13-week average price of £4.28, the amount relating to share price appreciation is £96,645, i.e. 238% (see below).

LTIP vesting and share appreciation

Recipient Mick Jeavons Martin Seidenberg

Award 2019 RM LTIP 2020 GLS LTIP (shares)

Value at award £260,289 £70,159

Value lapses – –

Adjusted value at award £260,289 £70,159

Share price growth £280,506 £96,645

Current estimated value £540,795 £166,804

Royal Mail plc

Annual Report and Financial Statements 2021-22

126

Corporate Governance

Annual Report on Directors’ Remuneration (audited)

forecasts. The Committee was satisfied that the ranges set out in

the table below represented challenging but realistic targets,

andthat significant out-performance of internal reference

pointsatthe time they were set would be required to achieve

amaximumpayout.

4. Review broader business performance and finalise awards:

The Committee can make an upwards or downwards adjustment

tothe scorecard outcome for broader performance. In line with

theprovisions of the Code, the Committee carefully considered

whether the respective formulaic outcome could be justified in the

context of Royal Mail and GLS’ overall performance. In so doing the

Committee reviewed the following:

 Business performance during 2021-22, including progress

against operational and strategic goals.

 The quality of underlying earnings and whether any significant

one-off factors influenced the results.

 The experience of our shareholders and customers over theyear.

2021-22 short-term incentive outcome (unaudited)

The Committee followed a four-step process for determining

STIPawards.

1. Assess the earnings (financial) gateway: The Committee

concluded that a minimum level of financial performance had

beenattained in Royal Mail and GLS and that the payment of

STIPswas affordable.

2. Consider eligibility: The Committee considered that each

Executive Director had exhibited an appropriate level of personal

performance and conduct and was deemed to have met the

gateway requirement to be eligible for an incentive.

3. Evaluate performance against the relevant business

scorecard for the Executive Director: Details of the scorecard

outcomes can be seen below. Setting STIP targets at the outset of

2021-22 was challenging in the context of an uncertain and fluid

outlook, especially given many countries had not yet begun easing

pandemic restrictions. Notwithstanding this, the Committee set

targets at the outset of the year, considering internal and external

2021-22 STIP scorecards

Measure Weighting Targets Assessment Outcome

CEO Royal Mail – Simon Thompson

Adjusted Royal

Mail UK operating

profit

1

37.5% Threshold – £500m

Target – £600m

Maximum – £700m

£486m

1

0.0/37.5

Royal Mail UK

revenue

37.5% Threshold – £8,475m

Target – £8,737m

Maximum – £8,999m

£8,514m 14.22/37.5

Health and safety 10.0% 20% reduction in Total Accident

FrequencyRateyear-on-year

7.2% re d u c tio n 0.0/10.0

First Class Retail

Quality of Service

7.5% Target – 93%

Maximum – 93.2%

81.8% in 2021-22.

Service not as we would haveliked it

0.0/7.5

Environment 7.5% Committee assessment of:

 Progress around defining and executing

astrategy on the sustainable impact of

ourbusiness.

 In-year progress towards environment

commitments (evidenced through progress

against agreed Board emission targets).

Refreshed strategy developed.

Much activity achieved in year (see pages 32 to 35)

Tonnes CO

2

e per £1m revenue – 62.0

(2020-21:62.1)

Energy Consumption kWh (‘000) – 2.346m

(2020-21: 2.353m)

3.75/7.5

1. Alternative performance measures are not defined under IFRS. The APMs used to describe the Group’s performance, including a reconciliation to reported results, are explained

on pages 228 to 232. For STIP purposes, adjusted operating profit excludes £70 million cost of reorganisation to streamline operational management (see explanation below).

In terms of the Royal Mail STIP, scorecard financial measures account for 75% of the potential payout. In assessing the profit element

under the scorecard, the Committee determined that it was appropriate to exclude the £70m cost of reorganisation to streamline

operational management to reflect that the restructure had not been envisaged at the time the target was set. This resulted in an adjusted

operating profit for STIP purposes of £486m. Notwithstanding the above, there was no payout under the profit element of the scorecard for

the Royal Mail CEO and Group CFO, as threshold performance was not achieved.

Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

127

Strategic Report Corporate Governance

2021-22 STIP scorecards (continued)

Measure Weighting Targets Assessment Outcome

CEO GLS – Martin Seidenberg

Adjusted GLS

EBITA

1

75% Threshold – €366.6m

Target – €381.9m

Maximum – €397.2m

€401.6m 75.0/75.0

Health and safety 10% Successfully develop and implement new health

and safety programme acrossGLS.

The Occupational Health and Safety awareness

and training programme now rolled-out, which

Included management training and development

of specific content for transport partners.

However, safety levels need to improve further

forboth employees and our transport partners.

Details of GLS’ employee safety and accident

record is set out on page 37.

5.0/10.0

Strategic priorities 15% Committee assessment of:

 Satisfactory progress against the Accelerate

GLS strategy in 2021-22.

 Improvement in external perceived value of GLS

(such as through a change in EBIT multiple).

 Strengthening of governance standards

withinGLS.

Continued to execute successfully Accelerate,

generating over €500m of free cash flow in

thefirst two years against the €1 bn target by

2024-25. International capabilities strengthened

e.g. Rosenau Transport acquisition in Canada.

Improved GLS valuation: analyst notes generally

positive on GLS, highlighting that GLS is considered

to be a strong, stable and well managed business.

Reliable and good financial results of GLS underpin

this development and valuation strength.

Strengthened governance consistent with

Groupstandards, such as information security.

Improved operating rhythm and Group interaction

in terms of business performance reviews and

formal supervisory board and GLS audit and risk

committee meetings.

15.0/15.0

Group CFO – Mick Jeavons

Adjusted Royal

Mail UK operating

profit

1

37.5% Threshold – £500m

Target – £600m

Maximum – £700m

See above 0.0/37.5

Adjusted GLS

EBITA

1

37.5% Threshold – €366.6m

Target – €381.9m

Maximum – €397.2m

See above 37.5/37.5

Health and safety 10% 20% reduction in Total Accident

FrequencyRateyear-on-year

See above 0.0/10.0

Strategic priorities 15% Committee assessment of:

 Progress against milestones relating

toRoyalMail transformation.

 Continuing to optimise financial

managementand reporting to drive

benefitsacross the Group.

 Effective management of Tax and Treasury

across the Group including optimising

benefitsin relation to cash flow.

Achieved 50% parcel automation and over 1,700

revisions and realignment activities deployed,

butdelivery below expectations. £59m benefits

delivered from Pathway to Change which was

atlow end of revised £55 to £80m range.

Improved governance and changes to internal

processes and leadership helped delivered

positive financial benefits.

Strong cash generation: £519m in-year trading

cash flow, including increased capex of £257m.

Group’s reported effective tax rate 7.6% (2020-21:

14.6%). 11.4% lower than the UK statutory rate of

19%. See pages 70 to 71 for more information.

11.0/15.0

Notes

1. Alternative performance measures are not defined under IFRS. The APMs used to describe the Group’s performance, including a reconciliation to reported results, are explained on

pages228to 232.

Royal Mail plc

Annual Report and Financial Statements 2021-22

128

Corporate Governance

Annual Report on Directors’ Remuneration (audited) continued

Royal Mail LTIP (unaudited)

2019 LTIP outcomes

The 2019 LTIP was based on performance against a relative TSR measure, with a performance period from 1 April 2019 to 31 March 2022

and financial performance, as set out below:

Performance vesting

Measure Weighting Threshold Maximum Achievement

TSR vs FTSE 50-150

(excluding mining and financial companies)

40% Median

10%

Top quartile

40%

88th percentile

40/40

Group EBITDA

1,2

40% £925m

10%

£1,200m

40%

£1,358m

40/40

Group parcels revenue 20% £7.0bn

5%

£7.8bn

20%

£8.85bn

20/20

Total vesting 100/100

1. Outturn of Group EBITDA after three years, adjusted back to budgeted exchange rates. Includes project costs but excludes voluntary redundancy costs and exceptional charges.

2. Performance measure assumes £160 million impact from the adoption of IFRS 16 ‘Leases’.

The Committee agreed that the level of vesting (100%) was a fair and reasonable outcome, having reviewed Royal Mail’s wider

performance (both financial and operational) and the share price performance over the three-year period. It concluded that the level of

vesting was justified and, therefore, no discretion was exercised to adjust the formulaic outcome. Due to the above performance, 100%

ofthe 2019 LTIP will vest in full in August 2022.

GLS LTIP outcomes

Martin Seidenberg was granted cash and share-based GLS LTIP awards prior to his appointment as an Executive Director. These awards

continue to vest on their normal schedule. Since 2021, Martin Seidenberg has been eligible for the Royal Mail LTIP and has not received

anyfurther grants under the GLS LTIP. Under the GLS LTIP, the maximum possible award was 98% of salary.

The performance conditions are based on adjusted GLS profit performance with a separate target set for each of the three financial years

of thevesting period: 25% of the award is based on achievement in year one; with 37.5% based on achievement in years two and three

respectively. Although performance is assessed annually, awards vest after three years subject to continued employment.

The single figure table includes the second and third tranche of Martin Seidenberg’s 2020 and 2019 GLS LTIP award, respectively, for

whichthe performance period ends in FY2021-22. The 2020 and 2019 awards vest in July 2023 and August 2022, respectively

subjecttocontinued employment.

Award

Outcome

(% of max)

Value vesting

(€)

Shares

vesting

Value

vesting (£)

2,3

2019 GLS LTIP – tranche 3 100% 150,675 – 128,125

2020 GLS LTIP – tranche 2 (cash) 100% 115,763 – 98,438

2020 GLS LTIP – tranche 2 (shares) 100% – 38,973 166,804

1. The single figure table in 2022-23 Annual Report will include the final tranche of Martin Seidenberg’s 2020 GLS LTIP award.

2. Cash awards converted for reporting purposes using the year end exchange rate of £1:€1.176.

3. Share awards converted for reporting purposes using the average 13 week share price to 27 March 2022 (£4.28).

2021-22 STIP outturn

M Jeavons M Seidenberg S Thompson

Maximum award (% of salary) 150% 150% 150%

Salary £420,000 € 580,000 £525,000

Committee assessment on performance under the relevant scorecard 48.5% 95.0% 17.97%

Discretion applied (+/- % pts) 0.0% 0.0% 0.0%

Final outcome for 2021-22

– as a % of maximum 48.5% 95.0% 17.97%

– as a % of salary 72.75% 142.5% 26.96%

– as an amount £305,550 € 826,500 £141,514

Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

129

Strategic Report Corporate Governance

Other outstanding LTIP awards (unaudited)

The following grants under the 2020 and 2021 Royal Mail LTIP remain outstanding at 27 March 2022. The performance conditions are set

out below:

Threshold Maximum

Measure Weighting Performance

Vesting

(%ofaward) Performance

Vesting

(%ofaward)

2020 RM LTIP

TSR vs FTSE 51-150

(excluding mining and financial companies)

40% Median 10% Upper

quartile

40%

Group EBITDA 40% £1,070m 10% £1,380m 40%

Group parcels revenue 20% £7.65bn 5% £8.45bn 20%

Total 100% 25% 100%

2021 RM LTIP

Total Shareholder Return vs FTSE 51-150

(excluding mining and financials) comparator group

40% Median 10% Upper

quartile

40%

Adjusted Royal Mail

UKoperatingprofit

Simon Thompson 40%

£656.1m

10%

£801.9m

40%

Mick Jeavons 20% 5% 20%

Royal Mail UK

parcels revenue

Simon Thompson 20%

£5,344.7m

5%

£5,907.3m

20%

Mick Jeavons 10% 2.5% 10%

Adjusted GLS EBITA

Martin Seidenberg 40%

€410m

10%

€449.9m

40%

Mick Jeavons 20% 5% 20%

GLS cashflow

Martin Seidenberg 20%

€281.2m

5%

€310.8m

20%

Mick Jeavons 10% 2.5% 10%

Total 100% 25% 100%

The amount of the LTIP share awards outstanding for each of the Executive Directors is shown in the following table, as at 27 March 2022.

Award

Max value of

award at grant

(% of salary)

Max value of

award at grant

(£’000)

% vesting

atthreshold

performance

(%of salary)

Final year of

performance

period

Number

ofshares

atgrant

Mick Jeavons

2019 RM LTIP

1

– – – 2021–22 126,354

2020 RM LTIP

2

150% 390 37.5% 2022–23 128,108

2021 RM LTIP

3

150% 630 37.5% 2023–24 125,831

Martin Seidenberg

2019 GLS LTIP

4

– 342 – 2021–22 -

2020 GLS LTIP (cash)

4

– 262 – 2022–23 -

2020 GLS LTIP (shares)

4

– – – 2022–23 103,929

2021 RM LTIP

3

150% 37.5% 2023–24 147,098

Simon Thompson

2021 RM LTIP

3

150% 788 37.5% 2023–24 157,289

1. The 2019 RM LTIP award was granted on 8 August 2019 at a price of £2.06 per share. The level of vesting is 100%. Shares will vest in August 2022.

2. The 2020 RM LTIP award was granted on 27 November 2020 at a price of £3.0443 per share.

3. The 2021 RM LTIP award was granted on 12 August 2021 at a price of £5.0067 per share.

4. The 2019 GLS LTIP was granted on 8 August 2019. The 2020 GLS LTIP, granted on 24 July 2020, comprises a cash-based award and a share-based award. The maximum cash award value of the 2019 and

2020 LTIP is €401,800 and €308,700 respectively. The values in the table above have been converted using an illustrative FX rate of £1:€1.176. The aggregate level of vesting for the 2019 GLS LTIP is 100%.

Royal Mail plc

Annual Report and Financial Statements 2021-22

130

Corporate Governance

Annual Report on Directors’ Remuneration (audited) continued

Shareholder dilution

All awards vesting under the Group’s share plans are satisfied by the transfer of existing shares or, where appropriate, the issuance

ofnewshares. The Group’s share plans contain limits that govern the amount of shares that may be issued to satisfy any subsequent

exercise of awards. These limits are in line with those stated in the Investment Association’s Principles of Remuneration. The Group

operates employee benefit trusts that are administered by independent trustees and which hold shares to meet various obligations

underthe Group’s share plans. As each Executive Director is within the class of beneficiary of these trusts, they are deemed, for the

purposes of the Companies Act 2006, to have an interest in the trusts’ shares.

Shareholding levels (audited)

Directors’ shareholdings

The table below sets out details of the shareholdings of the Directors as at 27 March 2022 (except where noted below). There has been

nochange in the Directors’ interests in the Company’s ordinary share capital between 27 March 2022 and 18 May 2022 (being the latest

practicable date prior to the publication of this Annual Report) except as noted below.

Number

ofshares

ownedon

27/03/22

1

Number

ofshares

ownedon

28/03/21

Policy

shareholding

requirement

Current

shareholding

(asa %

of salary)

2

Share awards

not subject to

performance

Share awards

subject to

performance

(LTIP 2019,

2020, 2021)

Chair of the Board

Keith Williams 56,800 56,800 – – – –

Executive Directors

Mick Jeavons 62,963 47,376 200% 36.3 22,862 380,293

Martin Seidenberg 9,800 – 200% 4.8 - 251,027

Simon Thompson 20,892 – 200% 9.6 - 157,289

Non-Executive Directors

Maria da Cunha 15,000 15,000 – – – –

Michael Findlay 16,690 16,690 – – – –

Rita Griffin 20,000 20,000 – – – –

Sarah Hogg 12,000 12,000 – – – –

Lynne Peacock 11,309 11,309 – – – –

Shashi Verma – – – – – –

1. For Directors who have stepped down from the Board, the number of shares owned is shown as at the date they stepped down. The number of shares is based on beneficial shareholdings, excludes

anyunvested share awards and includes (if appropriate) any shares held by persons closely associated with the Directors.

2. Value of beneficial shareholding based on the average share price during FY2021-22 (484 pence) and where required converted using an illustrative FX rate of £1:€1.176. Values include any vested LTIP

sharessubject to a holding period but exclude any unvested Deferred Share Bonus Plan (DSBP) awards. Mick Jeavons, Martin Seidenberg and Simon Thompson were appointed Executive Directors

on11 January 2021, 1 April 2021 and 11 January 2021 respectively. Each is expected to build their shareholding over time. As at 27 March 2022, none have met their shareholding requirement.

Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

131

Strategic Report Corporate Governance

Executive Director fees from external positions

(unaudited)

The Executive Directors are entitled to receive fees from

externalappointments.

Mick Jeavons, Martin Seidenberg and Simon Thompson did not

holdany external appointments at other listed companies for the

last reported financial year during the period they were appointed

to the Board.

Executive Director terms of employment (unaudited)

The Executive Directors are employed under service contracts with

an indefinite term.

Date of contract

Notice period

from RMG

(months)

Notice period

from employee

(months)

Mick Jeavons 10 January 2021 12 6

Martin Seidenberg 25 June 2020 12 6

Simon Thompson 10 January 2021 12 6

Copies of the Executive Directors’ service contracts will be

available for inspection at our forthcoming AGM.

Relative importance of spend on pay (unaudited)

The table below shows the percentage change in ordinary dividends

and overall expenditure on people compared with the previous

financial year. The Company considers overall expenditure on

colleague remuneration in the context of its general finances. For

reference, revenue has also been included because this measure

represents the income the Company received during the year and

provides a clear illustration of the ratio of people costs to income.

2021-22 2020-21 % change

Ordinary dividend per

share (pps) – paid in

theyear

1

16.7 – N/A

People costs (£m)

2

6,491 6,470 0.3

Group revenue (£m) 12,712 12,638 0.6

1. Dividends paid in 2021-22 include FY2020-21 final dividend of 10 pence and the H1 2021-22

interim of 6.7 pence. The special dividend of 20 pence paid in January 2022 is not included.

2. Group adjusted people costs include £115 million transformation costs of which £81 million

relates to voluntary redundancy (2020-21: £149 million of which £109 million relates to

voluntary redundancy costs). Excludes any pension adjustments. See page 67 and pages

178to180 for more commentary.

Payments for loss of office and payments to former

Executive Directors (audited)

Rico Back

As disclosed in both last year’s and the FY2019-20 Remuneration

Report, Rico Back stepped down from the Board on15 May 2020

and left the Group on 15 August 2020. In line with his contractual

entitlements, he was due to receive nine monthly payments in lieu

of notice (PILON) totalling £480,000, which represented the balance

of his 12-month notice period. The final two PILON instalments

were made in April and May 2021, each totalling £53,333.

Rico Back retained a deferred share bonus award granted in 2018

(52,243 shares). This award vested in full on 21 June 2021 and the

closing share price on vesting was 582.20 pence.

Further details of the treatment of his share awards and his

post-employment shareholding requirement were set out in

the2020-21 Annual Report.

Stuart Simpson

As disclosed in last year’s Remuneration Report, Stuart Simpson

stepped down from the Board on 11 January 2021 and left the

Group on 31 January 2021. In line with his contractual entitlements,

he was due to receive twelve monthly PILONs totalling £450,000,

which represented his 12-month notice period. His termination

arrangements with Royal Mail provided that his PILON payments

are reduced from any amounts he receives from alternative paid

employment. Stuart Simpson was appointed to a new role on

21 September 2021. As consequence of this new role, no further

PILONs are payable from October 2021. During 2021-22 six PILON

instalments were made, five of £37,500 each and a final pro rata

payment of £25,000 in September 2021.

Stuart Simpson retained a deferred share bonus award granted in

2018 (56,350 shares). This award vested in full on 21 June 2021 and

the closing share price on vesting was 582.20 pence. Stuart

Simpson’s 2018 Royal Mail LTIP award over 98,474 shares lapsed on

9 August 2021 as the performance conditions were not met.

Further details of the treatment of his share awards and his

post-employment shareholding requirement were set out in

the2020-21 Annual Report.

Royal Mail plc

Annual Report and Financial Statements 2021-22

132

Corporate Governance

Annual Report on Directors’ Remuneration (audited) continued

Comparison of change in Directors’ remuneration versus employee remuneration (unaudited)

We monitor year-on-year changes between the movement in remuneration for executives between performance years compared with the

wider workforce. The relevant disclosure requirement is for this comparison to be made against the employees of the Parent Company.

Onthe basis that Royal Mail plc (the Parent Company) does not employee any staff, we have voluntarily disclosed the comparisons against

a UK managerial population (internally graded level 2-9) as the Committee considers this provides a representative comparison (with

remuneration that is structured similarly, e.g. all managers are eligible for annual bonuses and are eligible for employee benefits). The

table below sets out the year-on-year percentage change in salary, benefits and annual incentives for the Directors of the Board against

anaverage full-time equivalent UK manager.

Salary/fee

% change

Benefits

% change

STIP

% change

21-22 vs

20-21

20-21 vs

19-20

21-22 vs

20-21

20-21 vs

19-20

21-22 vs

20-21

20-21 vs

19-20 Commentary in respect of 21-22 vs 20-21

Executive Directors

Mick Jeavons 346.8 N/A 351.0 N/A N/A N/A Part year in 2020-21

Headline salary and benefits unchanged

Martin Seidenberg N/A – N/A – N/A – Executive Director from 1.4.21

No comparative period

Simon Thompson 348.7 N/A 359.1 N/A N/A N/A Part year in 2020-21

Headline salary and benefits unchanged

Company Chair and

Non-Executive Directors

Keith Williams – 11.9 – – – –

Maria da Cunha 16.9 27.5 – – – – Became Designated Non-Executive Directors for the

workforce from 2.21

ESG Committee fee increased from 4.21

Michael Findlay – 33.9 – – – –

Rita Griffin 7.8 -1.5 – – – – ESG Committee fee increased from 4.21

Sarah Hogg 6.9 87.1 – – – – Joined ESG Committee from 2.21

ESG Committee fee increased from 4.21

Lynne Peacock 1.3 141.9 – – – – Joined ESG Committee from 2.22

Shashi Verma N/A N/A N/A N/A N/A N/A Appointed 29.9.2021 so no comparative period

Royal Mail managers 4.6 -0.1 -6.2 4.2 -22.9 0.2

Executive Directors

Percentage change figures for 2020-21 to 2021-22 are calculated using the respective figures in the single total figure for the remuneration.

Non-Executive Directors

Fee levels were unchanged between 2020-21 and 2021-22, other than the introduction of a fee for being Designated Non-Executive Director

for the workforce and an increase in the ESG Committee fees. The percentage increases in the above table reflect changes in responsibilities,

e.g. Committee memberships, or that the individual was not a Director for the whole year.

Manager

Employee data is based on full-time equivalent Royal Mail managers as at the relevant March year end, with calculations on a mean basis.

As the manager population will change yearly and the mean average (as opposed to median) considers the full range of data, itisexpected

that this will provide a more consistent year-on-year comparison.

The salary percentage change calculation considers the full-time equivalent mean employee annual salary at March year end plus

allowances, such as for temporary promotions, paid during the respective years. The very small reduction between 2019-20 and 2020-21

reflects the decision not to review manager salaries in 2020 and employee headcount changes.

Employee benefits are calculated on a per capita basis covering the car allowance or a cash equivalent and value of the medical cover.

Changes in the percentage will primarily be caused by two factors: changes in population and changes in employee benefit choices

(including more electric company cars being selected which have a lower taxable benefit value). The reduction in the average benefit value

in 2021-22 also reflects changes in the operation of benefits including the removal of cash alternative allowance, a move which was

introduced to promote take up of the medical cover.

For the 2021-22 STIP, a uniform forecast scorecard has been assumed for all eligible managers (as the year-end performance management process for

managers remains ongoing as at the date of this report with individual STIPs not yet determined). In 2020-21, the Committee decided not to make any

payments to managers under the discretionary STIP. In recognition of managers’ ongoing commitment to the business, a flat rate payment was made to

eligible managers at levels 6-9 but no recognition payment was made to managers at levels 2-5.

Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

133

Strategic Report Corporate Governance

TSR chart

11 Oct 13

Total Shareholder Return (rebased)

50

100

100

104

109

171

140

119

112

157

119

104

193

146

127

140

148

92

174

168

161

140

111

58

145

130

139

150

200

250

27 Mar 2227 Mar 16 26 Mar 17 25 Mar 18 31 Mar 19 29 Mar 2029 Mar 1530 Mar 14

FTSE 250FTSE 100RMG

225

118

175

28 Mar 21

CEO pay over the last 10 years (unaudited)

The total remuneration figure for the Group CEO and/or CEO Royal Mail over the last 10 years is shown in the table below. The STIP payout

and the LTIP vesting level as a percentage of the maximum opportunity are also shown.

Chief Executive Officer Financial year

Single figure

oftotal

remuneration

(£’000)

STIP awarded

as% of

maximum

Royal Mail

LTIPvesting

as% of

maximum

Simon Thompson 2021-22 753 18 N/A

Rico Back

2020-21

94 N/A N/A

Stuart Simpson 462 0% 0%

Simon Thompson 136 N/A N/A

Rico Back 2019-20 868 0% N/A

Moya Greene

2018-19

647 N/A 0%

Rico Back 235 0% 0%

Moya Greene 2017-18 1,790 71% 43%

2016-17 1,901 80% 46%

2015-16 1,529 82% 59%

2014-15 1,522 85% 69%

2013-14 1,360 77% 100%

2012-13 1,962 80% 100%

TSR comparison (unaudited)

TSR is the measure of the returns that a company has generated for its shareholders, reflecting both movement in the share price and

dividends, which are assumed to be reinvested over a period of time. The graph shows the Company’s TSR, since the date of the first

dayoftrading. During the performance period, the Company has been a constituent of both the FTSE 100 Index and the FTSE 250 Index,

therefore both indices are shown for comparison.

Royal Mail plc

Annual Report and Financial Statements 2021-22

134

Corporate Governance

Annual Report on Directors’ Remuneration (audited) continued

Policy implementation in 2022-23 (unaudited)

The following tables set out how the Committee proposes to operate the Policy for Executive Directors next year.

Element Implementation of Policy in 2022-23

Base salary No change in approach. We will continue to review the salary of each Executive Director annually and will do the

same in 2022-23. Salaries effective from 1 April 2022 shall be as follows:

CEO Royal Mail (Simon Thompson) £543,750, an increase of 3.6%

CEO GLS (Martin Seidenberg) €613,050, an increase of 5.7%

Group CFO (Mick Jeavons) £435,000, an increase of 3.6%

Benefits No change in approach to benefit provision for 2022-23.

Pension allowance No change in approach and pension allowance remains 13.6% of salary. This is lower than the current employer

contribution rate for the majority of the UK workforce (which is 15.6% of salary). However, it is in line with the

anticipated contribution rate under the new Proposed Collective Pension Plan.

Short-Term

Incentive Plan

No change in maximum STIP opportunity of 150% of salary, split between a cash award of up to 100% of salary

anda deferred share award of up to 50% of salary.

Target opportunity remains 75% of salary.

A minimum of 75% of the targets shall be financial, based on the performance of the business for which

theexecutive is responsible, with the remainder including robust operational KPIs and strategic objectives.

Themeasures are set out below. Targets for these measures will be disclosed retrospectively in next year’s

AnnualReport.

Long-Term

Incentive Plan

No change in maximum award of 150% of salary. Awards are granted annually to Executive Directors in the

formofa conditional share award. These will vest at the end of a three-year period subject to:

 The Executive Director’s continued employment at the date of vesting.

 The satisfaction of the performance conditions.

Threshold performance will equate to no more than 25% of the award vesting.

The Committee has reviewed the measures used for the 2021 LTIP and is comfortable that they remain

appropriate, and so is not proposing any change. The measures (and approach to targets) are set out below.

The Committee will evaluate the positioning of the share price when it comes to grant the 2022 LTIP awards.

Intheevent that the share price is significantly below the 2021 LTIP grant price, the Committee will consider

theappropriate course of action (such as scaling back the 2022 LTIP awards or an adjustment on vesting). As

appropriate, details will be included in a stock exchange announcement at the time of grant. As in previous years,

the Committee will retain the discretion to review vesting outcomes to ensure that these are reflective of the

underlying performance during the period

Shareholding

guideline

200% of salary for Executive Directors.

Post-cessation requirement: 200% of salary (or holding at the point of departure) to be held in granted shares for

two years after leaving.

Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

135

Strategic Report Corporate Governance

Incentive measures 2022-23

Following the changes to the Executive Director population in 2020-21, the Committee sets separate incentive scorecards for each of the

Executive Directors, reflecting their areas of responsibility (i.e. Group, Royal Mail or GLS). Details of the measures and targets (where not

considered commercially sensitive) set for 2022-23 awards are provided below.

2022-23 Short-Term Incentive Plan: measures and weightings

The 2022-23 scorecard reflects our strategic priorities. The targets are set annually by the Committee considering the relevant business’

annual financial plan, strategy and its priorities for the next few years within the context of the economic environment. The Committee

considers financial and operational targets to be commercially sensitive and that it would be detrimental to the Group’s interests to

disclose them before the end of the financial year. Financial measures make up 75% of each Executive Director’s scorecard. Non-financial

and strategic measures are assessed by the Committee using a combination of quantitative and qualitative assessment.

As in previous years, the Committee will, prior to reviewing scorecard performance assess whether an earnings gateway has been met

and that the payment of STIP awards is affordable.

Measure Weighting Measure type Targets

CEO Royal Mail – Simon Thompson

Adjusted Royal Mail UK operating profit 37.5% Financial Disclosed retrospectively.

Royal Mail UK revenue 37.5% Financial Disclosed retrospectively.

Health and safety 10.0% ESG Disclosed retrospectively.

First Class Quality of Service 5.0% ESG Disclosed retrospectively.

Environment 5.0% ESG Committee assessment of progress around the execution

ofa strategy on the sustainable impact of our business and

in-year progress towards environment commitments.

Strategic priorities 5.0% Strategic Committee assessment of progress to optimise the benefits

(financial and non-financial) from increased best practice

and knowledge sharing between Royal Mail and GLS.

CEO GLS – Martin Seidenberg

Adjusted GLS EBITA 75% Financial Disclosed retrospectively.

Health and safety 10% ESG Disclosed retrospectively.

Environmental 7.5% ESG Committee assessment of progress in the roll-out of the

GLS Environmental programme.

Strategic priorities 7.5% Strategic Committee assessment of:

 Progress to optimise the benefits (financial and non-

financial) from increased best practice and knowledge

sharing between Royal Mail and GLS.

 Progress against the main pillars of the Vision 2031

strategy: digitalisation, geographic expansion, moving

into adjacent segments and development of global cross

border.

Group CFO – Mick Jeavons

Adjusted Royal Mail UK operating profit 37.5% Financial Per CEO Royal Mail scorecard.

Adjusted GLS EBITA 37.5% Financial Per CEO GLS scorecard.

Health and safety 10% ESG Per CEO Royal Mail scorecard.

Strategic priorities 15% Strategic

priority

Committee assessment of:

 Progress to optimise the benefits (financial and non-

financial) from increased best practice and knowledge

sharing between Royal Mail and GLS.

 Progress against Royal Mail transformation milestones.

 Continuing to optimise a) financial management and

reporting to drive benefits across the Group and b) tax

and treasury management for cashflow benefit.

Royal Mail plc

Annual Report and Financial Statements 2021-22

136

Corporate Governance

Annual Report on Directors’ Remuneration (audited) continued

2022 Long-Term Incentive Plan (unaudited)

The measures that will apply to the 2022 LTIP awards are set out below.

The Committee wishes to ensure that any LTIP financial targets are set appropriately in the context of an uncertain macro-economic

outlook and the Group’s performance in Q1 2022-23. The associated targets will be confirmed at the time of grant via a stock exchange

announcement. The grant of the 2022 LTIP awards is likely to be made no later than August 2022.

Threshold Maximum

2022 LTIP measure Weighting Performance

Vesting

(%ofaward) Performance

Vesting

(%ofaward)

Total Shareholder Return vs FTSE 51-150 (excluding mining

and financials) comparator group

1

40% Median 10% Upper

quartile

40%

Adjusted Royal Mail UK

operatingprofit

Simon Thompson 40% 10% 40%

Mick Jeavons 20% 5% 20%

Royal Mail UK parcels revenue Simon Thompson 20% 5% 20%

Mick Jeavons 10% 2.5% 10%

Adjusted GLS EBITA Martin Seidenberg 40% 10% 40%

Mick Jeavons 20% 5% 20%

GLS cashflow Martin Seidenberg 20% 5% 20%

Mick Jeavons 10% 2.5% 10%

Total 100% 25% 100%

1. TSR will be measured using a three-month averaging (at the start and end) over a three-year measurement period. Threshold vesting will occur for median ranked performance, rising on a straight-line

basis to full vesting for upper quartile performance or above.

Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

137

Strategic Report Corporate Governance

Illustrative remuneration scenarios (£’000s)

Simon Thompson Martin Seidenberg Mick Jeavons

3,000

2,500

2,000

1,500

1,000

500

0

Fixed On target Max Max

(with share

price growth)

100%

£633

£1,421

£2,208

£2,602

44%

28%

28%

28%

36%

36%

23%

31%

31%

15%

Fixed On target Max Max

(with share

price growth)

100%

£598

£1,322

£2,046

£2,409

44%

28%

28%

28%

36%

36%

23%

31%

31%

15%

Fixed On target Max Max

(with share

price growth)

100%

£510

£1,151

£1,815

£2,085

44%

28%

28%

28%

36%

36%

23%

31%

31%

15%

Share price growth

LTIPSTIPFixed

Remuneration scenarios under the Policy

The charts below set out the remuneration scenarios for the Executive Directors in 2022-23, including an indication of maximum

remuneration receivable assuming Company share price appreciation of 50% during the LTIP performance period.

Assumptions

Fixed remuneration: Includes current salary, pension allowance at 13.6% and, in the case of the Group CFO and CEO Royal Mail, a benefits

value of £15,400 and, in the case of the CEO GLS, a benefits value of €15,203.

On target: STIP is 75% of salary (including the deferred element) and LTIP is 75% of salary.

Maximum: STIP is 150% of salary (including the deferred element) and LTIP is 150% of salary under the Policy.

Maximum with 50% share price appreciation: The share price embedded in the LTIP calculation for the ‘maximum with share price

growth’ bar chart is assumed to increase by 50% over the performance period.

No dividend equivalents on share-based incentives have been applied in any of the above scenarios.

Martin Seidenberg’s remuneration converted using a rate of £1:€1.201 for the purposes of this illustration.

Single figure table – Non-Executive Directors (audited)

Fees Other Total

£’000 2022 2021 2022 2021 2022 2021

Keith Williams 300 300 0 0 300 300

Maria da Cunha 76 65 0 0 76 65

Michael Findlay 75 75 0 0 75 75

Rita Griffin 69 64 0 0 69 64

Sarah Hogg 76 71 0 0 76 71

Lynne Peacock 76 75 0 0 76 75

Shashi Verma

1

30 – 0 – 30 –

1. Shashi Verma was appointed a Non-Executive Director from 29 September 2021 and his fees in the table above reflect the period from that date.

Royal Mail plc

Annual Report and Financial Statements 2021-22

138

Corporate Governance

Annual Report on Directors’ Remuneration (audited) continued

Non-Executive Director fee levels (unaudited)

Non-Executive Directors are paid an annual fee and additional fees for being Chair or a member of Board Committees and, if appropriate,

other additional time commitments. During 2021-22, the Chair of the Board did not receive any additional fees for membership of Board

Committees. The fees remained unchanged during 2021-22 and are set out below, together with the relevant fees effective from 1 April

2022 (representing a 3.6% increase). This is the first increase in fees since 2019 (other than an adjustment last year to the ESG Committee

rates).

Non-Executive Director fees Until March 22 From April 22

Chair of the Board £300,000 £310,800

Base fee £50,000 £51,800

Senior Independent Director £10,000 £10,360

Designated Non-Executive Director for engagement with the workforce £10,000 £10,360

Committee fees Until March 22 From April 22

Audit and Risk Committee Chair £15,000 £15,540

Membership £6,000 £6,216

Remuneration Committee Chair £15,000 £15,540

Membership £6,000 £6,216

Nomination Committee Chair £0 £0

Membership £4,000 £4,144

Environmental, Social and

Governance Committee

Chair £15,000 £15,540

Membership £6,000 £6,216

Non-Executive Chair of the Board and Non-Executive Director terms of appointment (unaudited)

The Non-Executive Directors are appointed by rolling letters of appointment. The Non-Executive Directors are appointed for up to three

years, subject to annual review and re-appointment. The fees for new Non-Executive Directors appointed will be set in accordance with

the terms of the approved Remuneration Policy in force at the time of appointment.

One month’s notice to terminate the appointment is required by either party, with the exception of the Non-Executive Chair for whom the

notice period is four months. The dates of the Non-Executive Chair of the Board’s and Non-Executive Directors’ letters of appointment are

set out in the following table:

Date of contract Unexpired term at 27 March 2022 (months)

Keith Williams 22 March 2019 3

Maria da Cunha 6 June 2019 3

Michael Findlay 6 June 2019 3

Rita Griffin 8 June 2020 16

Sarah Hogg 9 August 2019 16

Lynne Peacock 16 September 2019 16

Shashi Verma 13 October 2021 40

Non-Executive Director Policy implementation in 2022-23 (unaudited)

The applicable Non-Executive Director fees for 2022-23 are shown in the table above.

Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

139

Strategic Report Corporate Governance

Remuneration Committee (unaudited)

Remuneration Committee members and meetings

The members of the Committee and their attendance at meetings during FY2021-22 is shown on page 110.

Role and focus of the Remuneration Committee

The Committee is responsible for recommending to the Board the Remuneration Policy for Executive Directors and senior management,

and for setting the remuneration packages for Executive Directors and members of the respective GLS and Royal Mail Executive Boards.

Committee activities in the year May July Oct Jan Mar

Directors’ remuneration

Review of the Directors’ Remuneration Policy and implementation



Review of fixed and variable remuneration

 

Senior management remuneration

Contractual terms, recruitment and termination

  

Review of fixed and variable remuneration

 

All employee remuneration

Group-wide discretionary incentives

   

Annual salary review approach



Incentive performance measures, targets and outcomes

  

Frontline reward (including recognition) in Royal Mail

 

Deep dives: European remuneration, Share Incentive Plan, Manager

remuneration

  

Reward policies and rules review

   

Reward governance

Review regulatory, investor and market developments

  

Remuneration disclosures (such as DRR and gender pay gap)

 

Review shareholder feedback

  

Terms of Reference, Committee evaluation, advisers

  

In addition, the Committee met in April and May 2022 to consider (and, where appropriate, approve):

 The draft Directors’ Remuneration Report.

 Salary and fixed remuneration for Executive Directors and other executives.

 The extent to which any 2021-22 STIP performance measures had been satisfied, together with individual award levels.

 The measures and associated targets for the 2022-23 STIP and 2022 LTIP.

 Outcomes from the Committee evaluation process.

Royal Mail plc

Annual Report and Financial Statements 2021-22

140

Corporate Governance

Annual Report on Directors’ Remuneration (audited) continued

Advice to the Remuneration Committee

The Committee takes information and advice from inside and outside the Company. Internal support was provided by the Chief People

Officer, the Director of Reward and Performance, and the Group General Counsel and Company Secretary, and other senior leadership as

appropriate. No individual was present when matters relating to their own remuneration were discussed.

The Committee seeks advice from independent external advisers as appropriate. Deloitte was initially appointed in October 2018 following

a competitive tendering process led by the Committee. Deloitte provided information to the Committee regarding external market trends

and other Committee matters during 2021-22. The total fees paid to Deloitte in respect of this advice were £26,145 (2020-21: £46,235).

Deloitte also provided tax, technology, internal audit, strategy and business consulting services to the Group during the financial year.

Deloitte is a signatory to the Remuneration Consultants Group Code of Conduct, was appointed by the Committee and reports directly to

the Committee Chair. The Committee Chair can meet with advisers without Management present. The Committee is satisfied that the

advice it receives is objective and independent. There are no connections between Deloitte and individual Directors to be disclosed.

Management’s advice to the Committee was also supported by the provision of market insights and data from Deloitte, FIT Remuneration

Consultants and Willis Towers Watson, and legal advice from Addleshaw Goddard.

Remuneration Committee evaluation

The Committee’s effectiveness and performance was evaluated as part of the process described on page 94. The evaluation noted the

Committee and its chairmanship was functioning very well. Members of the Committee indicated that the quality of papers had improved

significantly and they were well supported by the internal reward team.

The key actions for 2022-23 are to:

 Support the incoming Committee Chair as she settles into her new role.

 Further review workforce remuneration and consider how to strengthen workforce views when setting executive remuneration.

 As part of the Committee review of remuneration advisers, clarify how the Committee uses advisers and optimises their contribution.

Shareholder voting and consideration of shareholder views

We undertook substantial engagement with our shareholders as part of the development of a new Remuneration Policy in 2019 and then

again in the run up to the 2020 AGM when we made further changes to the Policy. We are grateful for the feedback and input received over

the last 36 months.

At the 2021 Annual General Meeting on 21 July 2021, shareholders approved the Directors’ Remuneration Report published in the 2020-21

Annual Report and Financial Statements, receiving a strong vote in favour. The most recent vote on the Remuneration Policy, which was

effective from the date of the 2020 AGM for up to three years, also received shareholder support in excess of 99%.

Recent votes on the Directors’ Remuneration Policy

For Against

2019 AGM 99.94 0.36

2020 AGM 99.28 0.72

Recent votes on the Directors’ Remuneration Report

For Against

2019 AGM 97.63 2.37

2020 AGM 99.09 0.91

2021 AGM (see below) 99.78 0.12

We remain committed to ongoing dialogue with our shareholders and taking into consideration shareholder views on our Policy and

practices. We also look forward to engaging with shareholders in the run up to our Policy’s renewal in 2023. In the meantime, the

Committee Chair and Chair of the Board will continue to maintain contact as required with the Company’s key shareholders about relevant

remuneration issues.

Lynne Peacock

Chair of the Remuneration Committee

18 May 2022

Votes for 682,563,983 99.8%

V

otes against 1,488,211 0.2%

V

otes witheld 352,913

2021 AGM voting (breakdown)

V

otes for 642,589,878 99.3%

V

otes against 4,659,090 0.7%

V

otes witheld 48,823,734

2020 AGM voting (breakdown)

Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

141

Strategic Report Corporate Governance

Mark Amsden

Group General Counsel

and Company Secretary

The Directors present their Report, together with audited

Financial Statements for the year ended 27 March 2022.

This Directors’ Report together with the Strategic Report on

pages 1 to 77 form the Management Report for the purpose

ofDisclosure Guidance and Transparency Rule (DTR) 4.1.5R

andDTR 4.1.8R.

Information incorporated by reference

The following information is incorporated in the Directors’

Report by reference and can be found on the pages of this

Annual Report as indicated in the table below:

Page

Business model 12 and 13

Strategy for delivering objectives 14 to 23

Results 64 to 71

Financial assets and liabilities 208 to 215

Principal risks 56 to 61

Environmental, Social and Governance 30 to 45

Greenhouse gas emissions

andenergyreporting

30 to 33 and

46 to 51

Disabled employees 41

Our people 36 to 41

Diversity 40 and 41

Going Concern and Viability Statements 62 and 63

Dividend 5

Corporate Governance Report 78 to 141

Future developments 14 to 23

Statement of Directors’ Responsibilities 146

Employee share schemes 202 and 203

Research and development 11

The location of information required to be disclosed in the

Annual Report under Listing Rule 9.8.4R is as follows:

Listing Rule 9.8.4R disclosures

Page

Statement of the amount of interest capitalised 197 and 198,

and 201

Dividend waivers 142

Dividend waivers

The Trustee of the Royal Mail Share Incentive Plan (Plan) will not

receive any dividends on Free Shares which it has not been possible

to award to,or which have been forfeited by, participants in the Plan.

Capital

Purchase of own shares by the Company

At the 2021 AGM, the Company was authorised by its shareholders

to purchase up to a maximum of 10% of its ordinary shares. This

authority was valid at the end of the Company’s financial year and

will remain in place until the 2022 AGM, when the Directors will

seek a similar authority.

In November 2021, the Company announced that it had entered into

a non-discretionary agreement with Merrill Lynch International in

relation to the purchase of the Company’s ordinary shares of one

pence each for an aggregate purchase price of up to £200 million

(the Programme). The Programme began on 18 November 2021

and was successfully completed on 8 March 2022. Its purpose was

to reduce the Company’s share capital.

During the above period, 43,806,525 shares were purchased, with

anominal value of one penny. The aggregate amount paid for these

shares was £201 million, including stamp duty of £1 million and this

represented 4.4% ofthe called up share capital.

The Programme was conducted within certain pre-set parameters

and in accordance with the Company’s general authority to

repurchase ordinary shares. The Programme was also conducted

within the parameters prescribed by the UK versions of the Market

Abuse Regulation (EU) 596/2014 and the Commission Delegated

Regulation (EU) 2016/1052, and in accordance with Chapter 12 of

theUK Listing Rules.

Royal Mail plc

Annual Report and Financial Statements 2021-22

142

Corporate Governance

Directors’ Report

Share capital

As at 27 March 2022, the Company’s issued share capital comprised

956,193,475 ordinary shares of one penny each as set out in Note26

to the accounts on page 217.

Ordinary shareholders have the right to receive notice of, attend,

vote and speak at general meetings (whether in person or by

proxy). A holder of ordinary shares is entitled to one vote per

ordinary share held when a vote is taken on a poll. Shareholders

also have the right to receive a dividend, if recommended and

declared. Shareholders may transfer all or any of their certificated

or uncertificated shares in the Company. All such rights are subject

to certain exceptions and restrictions provided in the Company’s

Articles of Association (the Articles) and in any applicable legislation.

These include where rights are suspended for non-disclosure of an

interest in shares, where share transfers do not comply with specific

requirements, and where any amounts on shares owing by a

shareholder to the Company are overdue. The rights and obligations

of members, and restrictions on transfer, are set out in full in the

Articles, which can be found on the Company’s website. The

Company is not aware of any agreements between shareholders

that may result in restrictions on the transfer of securities and/or

voting rights.

Employees allocated Free Shares under the Free Shares Offer, or

who participate in the Partnership and Matching Plan, whose shares

are held in trust by the Trustee of the Royal Mail Share Incentive Plan,

are entitled to exercise any voting rights in respect of such shares

by instructing the Trustee how to vote on their behalf.

Authority of the Directors to allot shares

At the 2021 AGM, the Company obtained shareholder consent

toallotordinary shares in the Company and to grant rights

tosubscribe for, or to convert any security into, shares in the

Company up to a maximum nominal amount of £6,666,666

(representing approximately two-thirds of the Company’s issued

share capital at that time), of which one half may be allotted or

made the subject of rights in any circumstances and the other

halfmay be allotted or made the subject of rights pursuant to

arights issue. As at the date of this Directors’ Report, no new

shares have been allotted pursuant to the 2021 allotment

authority.The Directors will be seeking to renew this authority

atthe 2022 AGM, although the Company has no current plans

toexercise such authority if given.

At the 2021 AGM, the Directors were also empowered to allot

shares for cash (and/or to sell any treasury shares) on a non-pre-

emptive basis in connection with pre-emptive offers and, otherwise

than in connection with such offers, up to a maximum aggregate

nominal amount of £500,000 (representing approximately 5% of

theCompany’s issued share capital at that time). The Directors

were also given an additional power to allot shares for cash (and/or

to sell any treasury shares) on a non-pre-emptive basis up to a

maximum aggregate nominal amount of £500,000 (representing

approximately 5% of the Company’s issued share capital at that

time) for use in connection with acquisitions and/or specified capital

investments. The Directors will be seeking to renew these powers

at the 2022 AGM.

Directors

Details of the current Directors are included on pages 82 and 83 and

information about changes to the membership of the Board during

the year is included on page 5.

Appointment and replacement of Directors

The Articles provide that the Company may by ordinary resolution at

a general meeting elect any person to act as a Director, provided that,

if he or she has not been recommended by the Board, written notice

of the proposed appointment is given to the Company in accordance

with the Articles and that the Company receives written confirmation

of that person’s willingness to act as a Director. The Articles also

provide that the Board may at any timeappoint as a Director any

person who is willing to act as such.Unless the Company decides

otherwise, the maximum number of Directors permitted is 15.

At every AGM, Directors are required to retire under the Articles if

they have: (i) been appointed by the Board since the previous AGM;

(ii) been in office at the last two AGMs, but did not retire at either;

and (iii) held office with the Company (other than employment or

executive office) for a continuous period of nine years or more at

the date of the meeting.

Notwithstanding the requirements of the Articles, the Company’s

current practice is that all of its Directors retire at every AGM in line

with the recommendations of the Code. Directors who retire from

office at the AGM are eligible for re-appointment by the shareholders.

In addition to any power of removal conferred by the Companies Act

2006, the Company may by special resolution remove any Director

before the expiration of his or her period of office and may (subject

to the Articles) by ordinary resolution appoint another person who

is willing to act as a Director in his or her place. The Articles also

set out the circumstances in which a Director shall vacate office.

Directors’ powers

The business of the Company is managed by the Board, which may

exercise all the powers of the Company, subject to the provisions of the

Articles, the Companies Act 2006 and any resolution of the Company.

Directors’ interests

Details of the Directors’ share interests and, where applicable, their

connected persons are set out in the Directors’ Remuneration

Report on page 131.

Directors’ and officers’ insurance

The Company maintains directors’ and officers’ liability insurance

which provides appropriate cover for legal action brought against

its Directors. This is reviewed annually. Qualifying pension scheme

indemnity provisions were in force during the course of the financial

year ended 27 March 2022 for the benefit of the Trustees of Royal

Mail UK’s pension schemes, and such indemnity provisions are in

force at the date of approval of this report.

Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

143

Strategic Report Corporate Governance

Substantial shareholding

As at 27 March 2022, the Company had been notified, in accordance with DTR 5, of the following interests amounting to 3% or more of the

voting rights in the issued ordinary share capital of the Company.

During the period between 27 March 2022 and 18 May 2022, being the latest practicable date prior to publication of this Annual Report, the

Company received the following notifications in accordance with DTR 5.

 The €500 million bond issued by the Company in July 2014

contains provisions such that, on a change of control that

iscombined with a credit rating downgrade in certain

circumstances, the noteholders may require the Company

toredeem or, at the Company’s option, purchase the notes

fortheir principal amount, together with interest accrued to

(butexcluding) the date of redemption or repurchase.

 The €550 million bond issued by the Company in October 2019

contains provisions such that, on a change of control that is

combined with a credit rating downgrade in certain circumstances,

the noteholders may require the Company to redeem or, at

theCompany’s option, purchase the notes for their principal

amount, together with interest accrued to (but excluding) the

date of redemption or repurchase.

The Company does not have agreements with any Director or

employee that would provide compensation for loss of office or

employment resulting from a takeover except that provisions

oftheCompany’s share schemes and plans may cause options

andawards granted to employees under such schemes and plans

to vest on a takeover.

Special rights

There are no persons holding securities that carry special rights

with regard to the control of the Group.

Employee Benefit Trust (EBT)

As at 27 March 2022, a total of 2,265,008 shares (2021-21: 572,816

shares) were held by the EBT on behalf of the Company. The EBT

will not receive any dividends payable on shares which it holds at

the relevant time.

Change of control

The following agreements contain provisions permitting exercise

oftermination or other rights in the event of a change of control

ofthe Company:

 The Mails Distribution Agreement with Post Office Limited

provides for the supply of certain services to the Group and

allows for a request for renegotiation of terms in the event

ofachange of control of either party where such change of

control islikely to have a material adverse effect on the

partynotundergoing the change of control.

 The Syndicated Loan Facility with various financial institutions

provides the Group with a revolving credit facility for general

corporate and working capital purposes. The agreement

contains provision on a change of control of the Group for

negotiation of the continuation of the agreement or cancellation

by a lender.

Shareholder Number of shares

% voting rights disclosed

at time of notification

% of voting rights as at

27 March 2022

1

Vesa Equity Investment 199,432,580 20.0 20.9

RWC Partners 66,201,803 6.6 6.9

UBS Asset Management 60,235,232 6.0 6.3

BlackRock Inc. 52,541,557 5.5 5.5

Schroder Investment Management 50,587,637 5.1 5.3

Aberdeen Standard Investments 46,196,278 4.6 4.8

Vanguard Group 39,784,696 4.0 4.2

Columbia Threadneedle Investments 30,386,690 3.0 3.2

1. As a result of the Programme and the resulting reduction in the Company’s share capital, the percentage figures have been recalculated to provide a more accurate year-end picture.

Shareholder Number of shares % voting rights

Vesa Equity Investment 200,944,533 21.0

BlackRock Inc. 58,011,369 6.1

Royal Mail plc

Annual Report and Financial Statements 2021-22

144

Corporate Governance

Directors’ Report continued

Stakeholders

Engagement with UK employees, suppliers and customers

Disclosure on how the Company communicates with its employees,

encourages their involvement and achieves a common awareness

on the part of all employees of the financial and economic factors

affecting the performance of the Company is included on pages 36

to 39, 84 and 85 and 90.

Information on how the Company engages with its employees,

customers and suppliers, how the Directors have regard to their

interests, and the effect of that regard is set out on pages 26 and 27,

84 and 85 and 90.

Payment practices

Our Responsible Procurement Code of Conduct sets out how we work

with our suppliers and is available at www.royalmailgroup.com/en/

responsibility/policies-and-reports. We publish key statistics and other

information on our payment practices in line with the Duty to Report on

Payment Practices and Performance on the BEIS website. Information

is published on a six-monthly basis.

ESG

Greenhouse gas emissions and energy reporting

Information regarding the Group’s greenhouse gas emissions,

energy consumption and energy efficiency action required to

bedisclosed in this Directors’ Report can be found on pages 33

and34.

TCFD disclosures

Information regarding the Group’s climate-related financial

disclosures consistent with the TCFD recommendations can

befound on pages 46 to 51.

Other disclosures

Company’s Articles

Any amendments to the Articles may be made in accordance with

the Companies Act 2006 by way of a special resolution. Our Articles

have been reviewed and we are proposing some updates via a

special resolution at this year’s AGM. Further details of the

amendments are included in our Notice of AGM.

Our current Articles are available at www.royalmailgroup.com/en/

about-us/governance/.

Branches

As a global Group, our interests and activities are held or operated

through subsidiaries, branches, joint arrangements or associates

and subject to the laws and regulations of the relevant jurisdictions

in which they operate. Further information is included in Note 31 on

page 219.

Political donations and expenditure

No form of political donation, or expenditure, was made during

theyear. The Company intends to continue this policy for the

foreseeable future.

Financial instruments

The Group’s financial risk management objectives and policies

inrelation to its financial instruments are summarised in Note 1

onpage 164.

Post balance sheet events

There were no post balance sheet events to report in relation to 2021/22.

By Order of the Board

Mark Amsden

Group General Counsel and Company Secretary

18 May 2022

Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

145

Strategic Report Corporate Governance

Audit information

The Directors confirm that, so far as they are aware, there is

norelevant audit information (as defined in section 418 of the

Companies Act 2006) of which the auditor is unaware and that

eachDirector has taken all reasonable steps that they ought

tohavetaken as a director to make themselves aware of any

relevant audit information and to establish that the auditor

isawareof that information.

Responsibility statement of the Directors in respect

oftheannual financial report

The Directors as at the date of this Directors’ Report, whose names

and functions are set out on pages 82 and 83, confirm that to the

best of their knowledge:

 The Financial Statements, prepared in accordance with the

applicable set of accounting standards, give a true and fair view

of the assets, liabilities, financial position and profit or loss of

theCompany and the undertakings included in the consolidation

taken as a whole.

 The Directors’ Report and the Strategic Report include a fair

review of the development and performance of the business and

the position of the Company and the undertakings included in

the consolidation taken as a whole, together with a description

of the principal risks and uncertainties that they face.

The Directors consider that the Annual Report and Financial

Statements, taken as a whole, are fair, balanced and

understandable, and provide the information necessary for

shareholders to assess the Group’s position and performance,

business model and strategy.

This responsibility statement was approved by the Board of

Directors and is signed on its behalf by:

Keith Williams

Non-Executive Chair

Mick Jeavons

Group Chief Financial Officer

18 May 2022

The Directors are responsible for preparing the Annual Report and

the Group and Parent Company Financial Statements in accordance

with applicable law and regulations.

Company law requires the Directors to prepare Group and Parent

Company Financial Statements for each financial year. Under that

law they are required to prepare the Group Financial Statements in

accordance with UK-adopted international accounting standards

and applicable law, and have elected to prepare the Parent

Company Financial Statements in accordance with UK accounting

standards and applicable law, including FRS 101 Reduced

Disclosure Framework.

Under company law the Directors must not approve the Financial

Statements unless they are satisfied that they give a true and fair

view of the state of affairs of the Group and Parent Company and

ofthe Group’s profit or loss for that period. In preparing each of

theGroup and Parent Company Financial Statements, the Directors

are required to:

 Select suitable accounting policies and then apply them consistently.

 Make judgements and estimates that are reasonable,

relevantand reliable.

 For the Group Financial Statements, state whether they have

been prepared in accordance with UK-adopted international

accounting standards.

 Assess the Group and Parent Company’s ability to continue

asagoing concern, disclosing, as applicable, matters related

togoing concern.

 Use the going concern basis of accounting unless they either

intend to liquidate the Group or the Parent Company or to cease

operations or have no realistic alternative but to do so.

The Directors are responsible for keeping adequate accounting

records that are sufficient to show and explain the Parent

Company’s transactions and disclose with reasonable accuracy

atany time the financial position of the Parent Company and

enablethem to ensure that its Financial Statements comply with

the Companies Act 2006. They are responsible for such internal

control as they determine is necessary to enable the preparation

ofFinancial Statements that are free from material misstatement,

whether due to fraud or error, and have general responsibility

fortaking such steps as are reasonably open to them to safeguard

the assets of the Group and to prevent and detect fraud and

otherirregularities.

Under applicable law and regulations, the Directors are also

responsible for preparing a Strategic Report, Directors’ Report,

Directors’ Remuneration Report and Corporate Governance

Statement that complies with that law and those regulations.

The Directors are responsible for the maintenance and integrity

ofthe corporate and financial information included on the

Company’s website. Legislation in the UK governing the

preparationand dissemination of Financial Statements may

differfrom legislation in other jurisdictions.

In accordance with Disclosure Guidance and Transparency Rule

4.1.14R, the financial statements will form part of the annual

financial report prepared using the single electronic reporting

format under the TD ESEF Regulation. The auditor’s report on these

financial statements provides no assurance over the ESEF format.

Royal Mail plc

Annual Report and Financial Statements 2021-22

146

Corporate Governance

Statement of Directors’ Responsibilities in respect

oftheAnnualReport and Financial Statements

Contents

148 Independent Auditor’s Report

157 Consolidated Income Statement

158 Consolidated Statement of Comprehensive Income

159 Consolidated Balance Sheet

161 Consolidated Statement of Changes in Equity

162 Consolidated Statement of Cash Flows

164 Notes to the Financial Statements

164 1. Basis of preparation and accounting policies

176 2. Segment information

178 3. Revenue

178 4. Operating costs

179 5. People information

180 6. Specific items and pension charge to cash difference adjustment

181 7. Net finance costs

181 8. Taxation

185 9. Earnings per share

186 10. Dividends

186 11. Retirement benefit plans

196 12. Acquisition of businesses

197 13. Property, plant and equipment

198 14. Leases

200 15. Goodwill

201 16. Intangible assets

202 17. Investments in associates

202 18. Share-based payments

203 19. Non-current assets held for sale

204 20. Trade and other receivables

205 21. Cash and cash equivalents

205 22. Current trade and other payables

206 23. Loans and borrowings

208 24. Financial assets and liabilities and risk management

216 25. Provisions

217 26. Share capital and reserves

218 27. Commitments

218 28. Contingent liabilities and contingent assets

218 29. Related party information

219 30. Events aer the balance sheet date

219 31. Related undertakings of Royal Mail plc

224 Royal Mail plc – Parent Company Financial Statements

Financial Statements

Corporate Governance

Royal Mail plc

Annual Report and Financial Statements 2021-22

147

Additional InformationFinancial StatementsStrategic Report

Independent Auditor’s Report To The Members Of Royal Mail Plc

1 Our opinion is unmodified

We have audited the Financial Statements of Royal Mail plc

(“theCompany”) for the 52 weeks ended 27 March 2022 which

comprise the Consolidated Income Statement, Consolidated

Statement of Comprehensive Income, Consolidated Balance

Sheet, the Consolidated Statement of Changes in Equity, the

Consolidated Statement of Cash Flows, Parent Company

Statement of Changes in Equity, Parent Company Balance

Sheet,and the related notes, including the Group accounting

policies in Note 1 on pages 164 to 176 and Parent Company

accounting policies in Note 1 on page 225.

In our opinion:

– the Financial Statements give a true and fair view of the state of

the Group’s and of the Parent Company’s affairs as at 27 March

2022 and of the Group’s profit for the 52 weeks then ended;

– the Group Financial Statements have been properly prepared in

accordance with UK-adopted international accounting standards;

– the Parent Company Financial Statements have been properly

prepared in accordance with UK accounting standards,

including FRS 101 Reduced Disclosure Framework; and

– the Financial Statements have been prepared in accordance

withthe requirements of the Companies Act 2006.

Basis for opinion

We conducted our audit in accordance with International

Standards on Auditing (UK) (“ISAs (UK)”) and applicable law.

Ourresponsibilities are described below. We believe that the

auditevidence we have obtained is a sufficient and appropriate

basis for our opinion. Our audit opinion is consistent with our

report to the Audit and Risk Committee.

We were first appointed as auditor by the shareholders on

23 July2015. The period of total uninterrupted engagement

isforthe seven financial years ended 27 March 2022. We have

fulfilled our ethical responsibilities under, and we remain

independent of the Group in accordance with, UK ethical

requirements including the FRC Ethical Standard as applied

tolisted public interest entities. No non-audit services

prohibitedby that standard were provided.

Overview

Materiality: Financial

Statements as a whole

£25 million (2020-21: £18 million)

4.9% of normalised Group profit before tax, averaged over three years (2020-21: 4.1%

of normalised Group profit before tax)

Coverage 93.1% of the total profits and losses that made up Group profit before tax (2020-21: 95.4%)

Risks of material misstatement vs 2020-21

Recurring risks Deferred revenue associated with advance customer payments arising from stamps sold

Valuation of certain unquoted pension scheme assets

Valuation of pension scheme liabilities

Recoverability of Parent Company’s investment in subsidiaries and debt due from group

entities(Parent Company only)

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2 Key audit matters: our assessment of risks

ofmaterialmisstatement

Key audit matters are those matters that, in our professional

judgement, were of most significance in the audit of the Financial

Statements and include the most significant assessed risks of

material misstatement (whether or not due to fraud) identified by

us, including those which had the greatest effect on: the overall

audit strategy; the allocation of resources in the audit; and

directing the efforts of the engagement team. We summarise

below the key audit matters, in decreasing order of audit

significance, in arriving at our audit opinion above, together

withour key audit procedures to address those matters and,

asrequired for public interest entities, our results from those

procedures. These matters were addressed, and our results

arebased on procedures undertaken, in the context of, and

solelyfor the purpose of, our audit of the Financial Statements

asawhole, and in forming our opinion thereon, and consequently

are incidental to that opinion, and we do not provide a separate

opinion on these matters.

Group The risk Our response

Deferred revenue associated with

advance customer payments arising

fromstamps sold

£160 million; (2020-21: £218 million)

Refer to page 102 (Audit and Risk

CommitteeReport), page 166 (accounting

policy) and page 178 (financial disclosures).

Subjective estimate:

Revenue is recognised on delivery of

letters, not at the point stamps are sold

tocustomers. There can be a considerable

delay because stamps held by customers

remain valid. Therefore, the Group

estimates the value of advance customer

payments and defers revenue toreflect

the value of services still to beperformed.

As the Group is unable to track individual

stamps accurately, the calculation and

methodology of the advanced customer

payments balance is inherently subjective.

The calculation is derived from a

combination of data sources including

ratios based on historic sales data and

deferred revenue associated with advance

customer payments arising from stamps

sold, current sales and volumes trends.

The methodology allows for adjustments

for unusual trends identified where

deemed required.

As part of our risk assessment, we

determined that the stamps in the hands

of the public balance has a high degree of

estimation uncertainty, with a potential

range of reasonable outcomes greater

than our materiality for the Financial

Statements as a whole, and possibly

manytimes that amount and could be

subject to manipulation.

We performed the tests below rather

thanseeking to rely on any of the Group’s

controls because the nature of the balance

issuch that we would expect to obtain audit

evidence primarily through the detailed

procedures described.

Our procedures included:

– Methodology choice: We challenged

theGroup on the appropriateness of

themethodology in place for performing

the calculation, including benchmarking

the approach against that taken by other

global postal service providers.

– Methodology implementation: We

assessed whether the methodology had

been correctly applied and we challenged

the need for any adjustments through

consideration of possible alternatives.

– Independent re-performance: We

testedthe individual inputs used in

theGroup’s calculation to check the

accuracy of the balance.

– Challenge of the outcome: We challenged

the Group’s estimate by generating a range

of plausible outcomes using alternative

data points, and alternative methods of

calculating the estimate. We assessed

andevaluated the methodology and

compared the outcomes to assess the

appropriateness of the estimate made.

We have assessed the estimate for

indicators of management bias.

– Assessing transparency: We considered

the adequacy of the Group’s disclosures in

respect of deferred revenue associated

with advance customer payments arising

from stamps sold, particularly in relation

to the degree of estimation uncertainly.

Our results

We found the estimate of deferred revenue

tobe acceptable (2020-21: acceptable).

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Group The risk Our response

Valuation of certain

unquotedpension

schemeassets

Refer to page 102 (Audit

andRisk Committee Report),

page166 (accounting policy)

and page 192 (financial

disclosures).

Subjective valuation:

Significant estimates are made in valuing

certain unquoted pension schemes assets

(which comprise properties, equity funds,

mutual funds and private fixed income

bonds), which are hard to value and make

up a significant portion of unquoted

pension scheme assets reported on page

192. Small changes in the estimates used

to value these assets would have a

significant effect on the financial position

of the Group.

As part of our risk assessment, we

determined that the valuation of certain

unquoted pension scheme assets include

a high degree of estimation uncertainty,

with a potential range of reasonable

outcomes greater than our materiality

forthe Financial Statements as a whole,

and possibly many times that amount.

We performed the tests below rather than seeking to

relyon any of the Group’s controls because the nature

ofthe balance is such that we would expect to obtain

auditevidence primarily through the detailed

proceduresdescribed.

Our procedures included:

– Fund managers’ credentials: We assessed the

competence, independence and integrity of the Group’s

actuarial expert and third-party expert fund managers.

– Tests of details: We obtained third party valuation

confirmations directly from fund managers. We

compared those confirmations with unaudited net

assetvalue statements and tested the ability of

fundmanagers to prepare accurate valuations by

performing a retrospective review comparing a

sampleof the net asset value statements available

during the year to audited Financial Statements.

– Our property valuation expertise: We obtained

thirdparty valuations and used our internal valuation

specialists to assess the valuation methodology and

challenge key assumptions.

– Assessing transparency: We considered the adequacy

of the Group’s unquoted plans’ assets disclosures in

respect of the accuracy of the asset split by category.

Our results

We found the valuation of these certain pension

schemeassetsas mentioned above to be acceptable

(2020-21 result: acceptable).

Group The risk Our response

Valuation of pension

schemeliabilities

Royal Mail Pension

PlanDefined Benefit

Obligationvalue:

£6,960 million, Defined

BenefitCash Balance

Schemevalue: £1,926 million;

(2020-21: Royal Mail

PensionPlan Defined

BenefitObligation value:

£7,775 million, Defined

BenefitCash Balance

Schemevalue: £1,586 million)

Refer to page 102 (Auditand

Risk Committee Report),

page165 (accounting policy)

and pages 194 and 195

(financial disclosures).

Subjective valuation:

Significant estimates are made in

valuingthe Group’s post retirement

defined benefit plan obligations

includingin particular the discount rate,

the inflation assumptions, mortality

andpension increase assumptions.

Small changes in the assumptions and

estimates used to value the Group’s

pension obligations would have a

significant effect on the financial

positionof the Group.

As part of our risk assessment, we

determined that the valuation of the

Group’s pension scheme liabilities include

a high degree of estimation uncertainty,

with a potential range of reasonable

outcomes greater than our materiality

forthe Financial Statements as a whole,

and possibly many times that amount.

The Financial Statements (Note 11)

disclose the sensitivity of the liabilities to

key assumptions estimated by the Group.

We performed the tests below rather than seeking to

relyon anyof the Group’s controls because the nature

ofthe balance issuch that we would expect to obtain

auditevidence primarily through the detailed

proceduresdescribed.

Our procedures included:

– Benchmarking assumptions: We challenged the

keyassumptions applied in the calculation of the

liability, including the discount rate, inflation rate,

mortality and pension increases with the support

ofourown actuarial specialists to compare key

assumptions against market data.

– Actuary’s credentials: We assessed the

competence,independence and integrity

oftheGroup’sactuarial expert.

– Assessing transparency: We considered the

adequacyof theGroup’s disclosures in respect of

thesensitivity ofthe liability tokey assumptions.

Our results

We found the valuation of the pension obligation

tobeacceptable (2020-21 result: acceptable).

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Group The risk Our response

Recoverability of Parent

Company’s investment

insubsidiaries and debt

due from Group entities

(Parent Company only)

Investments – £2,912 million

(2020-21: £2,127 million).

Debt due from Group

entities- £611 million;

(2020-21: £895 million).

Refer to page 103 (Audit

andRisk Committee Report),

page 225 (accounting policy)

and page 226 (financial

disclosures).

Low risk, high value:

The carrying amount of the

ParentCompany’s investments

insubsidiaries and debt due from

Group entities represents 100%

(2020-21: 100%) of the Company’s

total assets.

Their recoverability is not at a high

risk of significant misstatement.

However, due to their materiality in

the context of the Parent Company

Financial Statements, this is

considered to be the area that

hadthe greatest effect on our

overall Parent Company audit.

We performed the tests below rather than seeking to rely

onanyof the Parent Company’s controls because the nature

ofthebalance is such that we would expect to obtain audit

evidenceprimarily through the detailed procedures described.

Our procedures included:

– Tests of detail: Compared the carrying amount of 100% of

investments with the relevant subsidiary’s balance sheet to

identify whether their net assets, being an approximation of

their minimum recoverable amount, were in excess of their

carrying amount and assessing whether those subsidiaries

have historically been profit-making.

– Assessing subsidiary audit: Assessing the audit work

performed on the subsidiary balance sheet and considering the

results of that work on the subsidiary’s profit and net assets.

– Comparing valuations: We compared the carrying amount of the

Parent Company’s investments to the Group’s market capitalisation.

Our results

We found the carrying amounts of investments and intercompany

receivables to be acceptable (2020-21: acceptable).

We continue to perform procedures over the Royal Mail Senior

Executives Pension Plan which we included in our valuation

ofpension scheme liabilities key audit matter in the prior year.

However, given wind up of the scheme is imminent and there

isaninsurance policy in place equal to the value of the liability,

wehave not assessed this as one of the most significant risks

inour current year audit and, therefore, it is not separately

identified in our report this year.

3 Our application of materiality and an overview

of the scope of our audit

Materiality for the Group Financial Statements as a whole

wassetat £25 million (2020-21 £18 million).

Materiality is based on normalised profit before tax, averaged

over the past three years. For the current and prior years, profit

before tax was normalised for the profit on disposal of property,

plant and equipment. The item not included in the benchmark

wassubject to audit procedures by the Group team, and the

quantum of this item is disclosed in Note 2 of the Financial

Statements. Materiality represents 4.9% of the normalised profit

before tax measure, averaged over three years, of £507 million

(2020-21: 4.1% of normalised PBT of £437 million).

Due to the volatility in the Group’s results in recent financial years,

as part of our materiality assessment we also considered the

scale of the business, the level of judgement and precision within

the Group’s key accounting judgements, as well as how the level

of materiality compares to other relevant benchmarks such as

revenue, of which it represents 0.20% (2020-21: 0.14%) and total

assets, of which it represents 0.2% (2020-21: 0.2%), wherethey

provide more consistent measures year on year thanGroup profit

before tax.

Materiality for the Parent Company Financial statements

asawhole was set at £4.2 million (2020-21: £3 million),

determinedwith reference to a benchmark of Company net

assetsamounting to £2,602 million, of which it represents 0.2%

(2020-21: £2,084 million and 0.1%).

In line with our audit methodology, our procedures on individual

account balances and disclosures were performed to a lower

threshold, performance materiality, so as to reduce to an acceptable

level the risk that individually immaterial misstatements in individual

account balances add up to a material amount across the

Financial Statements as a whole.

Performance materiality for the Group and Parent Company was

setat 75% (2020-21: 75%) of materiality for the Financial Statements

as a whole, which equates to £18.7 million (2020-21: £13.5 million)

forthe Group and £3.15 million (2020-21: £2.2 million) for the Parent

Company. We applied this percentage in our determination of

performance materiality because we did not identify any factors

indicating an elevated level of risk.

We agreed to report to the Audit and Risk Committee any corrected

or uncorrected identified misstatements exceeding £1.25 million

(2020-21: £0.9 million), in addition to other identified misstatements

that warranted reporting on qualitative grounds.

Of the Group’s 21 (2020-21: 23) reporting components, we

subjected 3 (2020-21: 4) to full scope audits for group purposes

and 1 (2020-21: none) to specified risk-focused audit procedures

over cash and cash equivalents, people costsand management

override of controls. The latter was notindividually financially

significant enough to require a full scope audit for group purposes,

but did present specific individualrisks that needed to be addressed.

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The components within the scope of our work accounted for

99.7% of revenue (2020-21: 99.7%), 93.1% of the total profits

andlosses that made up Group profit before tax (2020-21: 95.4%),

and 99.3% of total assets (2020-21: 99.5%).

For the residual 17 components (2020-21: 19), we performed

ananalysis at an aggregated group level to re-examine our

assessment that there were no significant risks of material

misstatement within these.

The Group team instructed component auditors as to the

significant areas to be covered, including the relevant risks

detailed above and the information to be reported back. TheGroup

team approved the component materialities, which ranged from

£4.2 million to £20 million (2020-21: £3 million to£15 million),

having regard to the mix of size and risk profile ofthe Group

across the components.

The work on 1 of the 3 full scope components (2020-21: 1 of the4

full scope components) was performed by component auditors

and the rest, including the audit of the Parent Company, was

performed by the Group team.

The Group audit team held regularvideo conference meetings with

all in scope components. These meetings involved explanation of

Group audit instructions, involvement in planning audit procedures,

discussing progress updates and emerging findings, reviewing

outcomes of testing performed and involvement in discussing

auditfindings with component management. The Group audit team

reviewed the audit documentation of component auditors through

various stages of their work. The Group team also attended the

component virtual clearance meetings. At these meetings, the

findings reported to the Group team were discussed in more

detail,andany further work required by the Group team was

thenperformed by the component auditor.

The scope of the audit work performed was predominately

substantive as we placed limited reliance upon the Group’s

internal control over financial reporting.

4 The impact of climate change on our audit

In planning our audit, we have considered the potential impact of

climate change on the Group’s business and its Financial Statements.

The Group has set out to reduce its emissions to zero by 2045.

The majority of the Group’s carbon emissions are in the domestic and

international transport network, and the Group continues to develop

its assessment of climate change. Climate change initiatives impact

the Group in a variety of ways including opportunities and risks relating

to operational and supply chain decarbonisation and the potential

reputational impact associated with the Group’s delivery of its climate

related initiatives. Further information is provided on pages 44 to 51.

While the Group has set out its climate transition strategies,

theGroup continues to assess and develop the consequences

ofthis in terms of capital expenditure, the cost base and impacts

on cash flows.

The Group considered the impact of climate change and the

Group’s targets in the preparation of the Financial Statements,

including an evaluation of critical accounting estimates and

judgements. The Group concluded that this did not have a

materialeffect on the consolidated Financial Statements.

As part of our audit, we have made enquiries of Management

tounderstand the extent of the potential impact of climate

changerisks on the Group’s Financial Statements, including their

assessment of critical accounting estimates and judgements,

andthe effect on our audit. We have performed a risk assessment

to evaluate the potential impact, including the estimates made

regarding useful economic lives of property, plant and equipment,

and the valuation of certain unquoted pension assets.

We held discussions with our own climate change professionals

to challenge our risk assessment.

Taking into account the expected remaining useful lives of

property, plant and equipment, and the nature of unquoted

pension assets, we assessed that there is not a significant

impacton our audit for this financial year. There was no

significant impact of climate on our key audit matters.

We have read the Group’s disclosure of climate related

information in the front half of the annual report as set out on

pages 44 to 51 and considered consistency with the Financial

Statements and our audit knowledge.

5 Going concern

The Directors have prepared the Financial Statements on the

goingconcern basis as they do not intend to liquidate the Group

orthe Company or to cease their operations, and as they have

concluded that the Group’s and the Company’s financial position

means that this is realistic. They have also concluded that there

are no material uncertainties that could have cast significant

doubt over their ability to continue as a going concern for at

leasta year from the date of approval of the Financial Statements

(“the going concern period”).

We used our knowledge of the Group, its industry, and the

generaleconomic environment to identify the inherent risks to

itsbusiness model and analysed how those risks might affect

theGroup’s and Company’s financial resources or ability to

continue operations over the going concern period. The risks

thatwe considered most likely to adversely affect the Group’s

andCompany’s available financial resources and EBITDA/net

debtmetrics relevant to debt covenants over this period were:

– the impact of deteriorating economic and market conditions

impacting Royal Mail and GLS;

– increased competition in the UK parcels sector;

– the 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.

We also considered less predictable but realistic second order

impacts, such as the potential outcome of the contingent liabilities

and provisions related to regulatory investigations that could

affect demand in the Group’s markets.

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We considered whether these risks could plausibly affect the

liquidity or covenant compliance in the going concern period by

assessing the degree of downside assumption that, individually

and collectively, could result in a liquidity issue, taking into

account the Group’s current and projected cash and facilities

(areverse stress test).

Our procedures also included:

– Critically assessing assumptions in the Directors’ base case

andsevere but plausible downside scenarios relevant to

liquidity and covenant metrics, considering the forecasted

operating levels and how these relate to both pre-COVID-19

andCOVID-19 levels ofperformance.

– Comparing past budgets to actual results to assess the

Directors’ track record of budgeting accurately.

– Inspecting the confirmation from the lender of the level of

committed financing, and the associated covenant requirements.

We considered whether the going concern disclosure in Note 1

tothe Financial Statements gives a full and accurate description

ofthe Directors’ assessment of going concern, including the

identified risks and, dependencies, and related sensitivities.

Our conclusions based on this work:

– we consider that the Directors’ use of the going concern basis

of accounting in the preparation of the Financial Statements

isappropriate;

– we have not identified, and concur with the Directors’

assessment that there is not, a material uncertainty related

toevents or conditions that, individually or collectively, may

cast significant doubt on the Group’s or Company’s ability to

continue as a going concern for the going concern period;

– we have nothing material to add or draw attention to in

relationto the Directors’ statement in Note 1 to the Financial

Statements on the use of the going concern basis of accounting

with no material uncertainties that may cast significant doubt

over the Group and Company’s use of that basis for the going

concern period, and we found the going concern disclosure in

Note 1 to be acceptable; and

– the related statement under the Listing Rules set out on

page63 is materially consistent with the Financial Statements

and our audit knowledge.

However, as we cannot predict all future events or conditions

andas subsequent events may result in outcomes that are

inconsistent with judgements that were reasonable at the time

they were made, the above conclusions are not a guarantee that

the Group or the Company will continue in operation.

6 Fraud and breaches of laws and regulations –

ability to detect

Identifying and responding to risks of material misstatement

dueto fraud

To identify risks of material misstatement due to fraud (“fraud

risks”) we assessed events or conditions that could indicate an

incentive or pressure to commit fraud or provide an opportunity

tocommit fraud. Our risk assessment procedures included:

– Enquiring of Directors, the Audit and Risk Committee,

InternalAudit and Risk Management, and inspection of

policydocumentation as to the Group’s high-level policies

andprocedures to prevent and detect fraud, including

theinternal audit function, and the Group’s channel for

‘whistleblowing’, as well as whether they have knowledge

ofany actual, suspected or alleged fraud.

– Reading Board, Audit and Risk Committee, Nomination

Committee and Remuneration Committee minutes.

– Considering remuneration incentive schemes (Royal Mail

LongTerm Incentive Planand Deferred Share Bonus Plan)

andperformance targetsfor Management and Directors.

– Using analytical procedures to identify any unusual or

unexpected relationships.

We communicated identified fraud risks throughout the audit

team and remained alert to any indications of fraud throughout

the audit. This included communication from the Group audit

team to full scope component audit teams of relevant fraud

risksidentified at the Group level and request to full scope

component audit teams to report to the Group audit team any

instances of fraud that could give rise to a material misstatement

at the Group level.

As required by auditing standards, and taking into account

possible pressures to meet profit targets, we perform procedures

to address the risk of management override of controls, in

particular the risk that Group Management may be in a position

tomake inappropriate accounting entries and the risk of bias in

accounting estimates and judgements such as deferred revenue

in relation to advanced customer payment.

On this audit, our only fraud risk is in relation to deferred revenue

in relation to advance customer payments. We do not believe

there is a fraud risk related to other revenue streams because

thelow value, high volume nature of transactions reduces the

opportunities for fraudulent activity.

We did not identify any additional fraud risks.

Further detail in respect of deferred revenue associated with

advance customer payments arising from stamps sold is set

outin the key audit matter disclosures in section 2 of this report.

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We performed procedures including:

– Identifying journal entries and other adjustments to test

forallfull scope components and that over which specified

auditprocedures are performed, based on risk criteria and

comparing the identified entries to supporting documentation.

These included those posted to accounts with an associated

fraud risk, round sum journals posted in period 12, post close

journals and unusual journals posted to revenue, cash and

borrowing accounts.

– Evaluated the business purpose of significant unusual transactions.

– Assessing whether the judgements made in making accounting

estimates are indicative of a potential bias, including assessing

the estimate of deferred revenue associated with advance

customer payments for bias.

We discussed with the Audit and Risk Committee and those

charged with governance matters related to actual or suspected

fraud, for which disclosure is not necessary, and considered any

implications for our audit.

Identifying and responding to risks of material misstatement

related to compliance with laws and regulations

We identified areas of laws and regulations that could reasonably

be expected to have a material effect on the Financial Statements

from our general commercial and sector experience, and through

discussion with the Directors and other management (as required

by auditing standards), and from inspection of the Group’s

regulatory and legal correspondence and discussed with the

Directors and other management the policies and procedures

regarding compliance with laws and regulations. As the Group

isregulated, our assessment of risks involved gaining an

understanding of the control environment including the entity’s

procedures for complying with regulatory requirements.

We communicated identified laws and regulations throughout our

team and remained alert to any indications of non-compliance

throughout the audit. This included communication from the

Group audit team to full-scope component audit teams of relevant

laws and regulations identified at the Group level, and a request

for full scope component auditors to report to the Group audit

team any instances of non-compliance with laws and regulations

that could give rise to a material misstatement at the Group level.

The potential effect of these laws and regulations on the Financial

Statements varies considerably.

Firstly, the Group is subject to laws and regulations that directly

affect the Financial Statements including financial reporting

legislation (including related companies legislation), distributable

profits legislation, taxation legislation, and pensions legislation

and we assessed the extent of compliance with these laws and

regulations as part of our procedures on the related Financial

Statement items.

Secondly, the Group is subject to many other laws and regulations

where the consequences of non-compliance could have a material

effect on amounts or disclosures in the Financial Statements, for

instance through the imposition of fines or litigation or the loss of

the Group’s license to operate. We identified the following areas

as those most likely to have such an effect: GDPR compliance,

health and safety, anti-bribery and corruption, employment law,

PCI compliance, money laundering, foreign corrupt practices,

environmental protection, export control, consumer rights act,

misrepresentation act, contract law, distance selling regulations,

competition legislation and price fixing, and the postal services

act as enforced by Ofcom, in recognising the nature of the Group’s

activities. Auditing standards limit the required audit procedures

to identify non-compliance with these laws and regulations to

enquiry of the Directors and other management and inspection of

regulatory and legal correspondence, if any. Therefore if a breach

of operational regulations is not disclosed to us or evident from

relevant correspondence, an audit will not detect that breach.

The Competition Act investigation and potential follow on claims

are is discussed in Note 25 and we have assessed the disclosures

made against our understanding from legal correspondence to

help us assess the related implications.

Context of the ability of the audit to detect fraud

or breaches of law or regulation

Owing to the inherent limitations of an audit, there is an

unavoidable risk that we may not have detected some material

misstatements in the Financial Statements, even though we have

properly planned and performed our audit in accordance with

auditing standards. For example, the further removed non-

compliance with laws and regulations is from the events and

transactions reflected in the Financial Statements, the less likely

the inherently limited procedures required by auditing standards

would identify it.

In addition, as with any audit, there remained a higher risk of

non-detection of fraud, as these may involve collusion, forgery,

intentional omissions, misrepresentations, or the override of

internal controls. Our audit procedures are designed to detect

material misstatement. We are not responsible for preventing

non-compliance or fraud and cannot be expected to detect

non-compliance with all laws and regulations.

7 We have nothing to report on the other information

in the Annual Report

The Directors are responsible for the other information presented

in the Annual Report together with the Financial Statements.

Ouropinion on the Financial Statements does not cover the other

information and, accordingly, we do not express an audit opinion

or, except as explicitly stated below, any form of assurance

conclusion thereon.

Our responsibility is to read the other information and, in

doingso,consider whether, based on our Financial Statements

audit work, the information therein is materially misstated

orinconsistent with the Financial Statements or our audit

knowledge. Based solely on that work we have not identified

material misstatements in the other information.

Royal Mail plc

Annual Report and Financial Statements 2021-22

Financial Statements

154

Strategic report and Directors’ report

Based solely on our work on the other information:

– we have not identified material misstatements in the strategic

report and the Directors’ report;

– in our opinion the information given in those reports for the

financial year is consistent with the Financial Statements; and

– in our opinion those reports have been prepared in accordance

with the Companies Act 2006.

Directors’ remuneration report

In our opinion the part of the Directors’ Remuneration Report

tobe audited has been properly prepared in accordance with

theCompanies Act 2006.

Disclosures of emerging and principal risks

and longer-term viability

We are required to perform procedures to identify whether

thereis a material inconsistency between the Directors’

disclosures in respect of emerging and principal risks

andtheviability statement, and the Financial Statements

andouraudit knowledge.

Based on those procedures, we have nothing material to add

ordraw attention to in relation to:

– the Directors’ confirmation within the viability statement

onpages 62 and 63 that they have carried out a robust

assessment of the emerging and principal risks facing

theGroup, including those that would threaten its business

model, future performance, solvency and liquidity;

– the principal risks disclosures describing these risks and

howemerging risks are identified, and explaining how they

arebeing managed and mitigated; and

– the Directors’ explanation in the viability statement of how they

have assessed the prospects of the Group, over what period

theyhave done so and why they considered that period to be

appropriate, and their statement as to whether they have a

reasonable expectation that the Group will be able to continue in

operation and meet its liabilities as they fall due over the period

of their assessment, including any related disclosures drawing

attention to any necessary qualifications or assumptions.

We are also required to review the viability statement, set

outonpages 62 and 63 under the Listing Rules. Based on the

aboveprocedures, we have concluded that the above disclosures

are materially consistent with the Financial Statements and our

audit knowledge.

Our work is limited to assessing these matters in the context of

only the knowledge acquired during our Financial Statements

audit.As we cannot predict all future events or conditions and as

subsequent events may result in outcomes that are inconsistent

with judgements that were reasonable at the time they were made,

the absence of anything to report on these statements is not a

guarantee as to the Group’s and Company’s longer-term viability.

Corporate governance disclosures

We are required to perform procedures to identify whether there

is a material inconsistency between the Directors’ corporate

governance disclosures and the Financial Statements and our

audit knowledge.

Based on those procedures, we have concluded that each of the

following is materially consistent with the Financial Statements

and our audit knowledge:

– the Directors’ statement that they consider 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 Group’s position and

performance, business model and strategy;

– the section of the annual report describing the work of the Audit

and Risk Committee, including the significant issues that the

Audit and Risk Committee considered in relation to the

Financial Statements, and how these issues were addressed;

and

– the section of the annual report that describes the review of

theeffectiveness of the Group’s risk management and internal

control systems.

We are required to review the part of the Corporate Governance

Statement relating to the Group’s compliance with the provisions

of the UK Corporate Governance Code specified by the Listing

Rules for our review, and to report to you if a corporate

governance statement has not been prepared by the company.

We have nothing to report in these respects.

8 We have nothing to report on the other matters

on which we are required to report by exception

Under the Companies Act 2006, we are required to report to you if,

in our opinion:

– adequate accounting records have not been kept by the Parent

Company, or returns adequate for our audit have not been

received from branches not visited by us; or

– the Parent Company Financial Statements and the part of

theDirectors’ Remuneration Report to be audited are not

inagreement with the accounting records and returns; or

– certain disclosures of Directors’ remuneration specified

bylaware not made; or

– we have not received all the information and explanations

werequire for our audit.

We have nothing to report in these respects.

Royal Mail plc

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155

Additional InformationFinancial StatementsStrategic Report Corporate Governance

9 Respective responsibilities

Directors’ responsibilities

As explained more fully in their statement set out on page 146,

theDirectors are responsible for: the preparation of the Financial

Statements including being satisfied that they give a true and fair

view; such internal control as they determine is necessary to

enable the preparation of Financial Statements that are free from

material misstatement, whether due to fraud or error; assessing

the Group and Parent Company’s ability to continue as a going

concern, disclosing, as applicable, matters related to going

concern; and using the going concern basis of accounting unless

they either intend to liquidate the Group or the Parent Company or

to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities

Our objectives are to obtain reasonable assurance about

whetherthe Financial Statements as a whole are free from

materialmisstatement, whether due to fraud or error, and to

issueour opinion in an auditor’s report. Reasonable assurance

isahigh level of assurance, but does not guarantee that an audit

conducted in accordance with ISAs (UK) will always detect a

material misstatement when it exists. Misstatements can arise

from fraud or error and are considered material if, individually

orinaggregate, they could reasonably be expected to influence

theeconomic decisions of users taken on the basis of the

FinancialStatements.

A fuller description of our responsibilities is provided on

theFRC’swebsite at www.frc.org.uk/auditorsresponsibilities.

The Company is required to include these Financial Statements

inan annual financial report prepared using the single electronic

reporting format specified in the TD ESEF Regulation. This

auditor’s report provides no assurance over whether the annual

financial report has been prepared in accordance with that format.

10 The purpose of our audit work and to whom

we owe our responsibilities

This report is made solely to the Company’s members, as a

body,in accordance with Chapter 3 of Part 16 of the Companies

Act 2006. Our audit work has been undertaken so that we might

state to the Company’s members those matters we are required

to state to them in an auditor’s report and for no other purpose.

To the fullest extent permitted by law, we do not accept or

assumeresponsibility to anyone other than the Company

andtheCompany’s members, as a body, for our audit work,

forthis report, or for the opinions we have formed.

Ian Griffiths (Senior Statutory Auditor)

for and on behalf of KPMG LLP, Statutory Auditor

Chartered Accountants

15 Canada Square

London

E14 5GL

18 May 2022

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Annual Report and Financial Statements 2021-22

Financial Statements

156

Consolidated Income Statement

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

Notes

Reported

52 weeks 2022

£m

Reported

52 weeks 2021

£m

Continuing operations

Revenue 3 12,712 12,638

Operating costs

1

4/5 (12,128) (12,020)

People costs (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

2

584 618

Operating specific items 6/25 (7) (7)

Operating profit 577 611

Profit on disposal of property, plant and equipment (non-operating specific item)

2

6 72 36

Profit before interest and tax 649 647

Finance costs 7 (57) (55)

Finance income 7 6 17

Net pension interest (non-operating specific item)

2

6/11 64 117

Profit before tax 662 726

Tax charge 8 (50) (106)

Profit for the year 612 620

Earnings per share

Basic 9 61.7p 62.0p

Diluted 9 61.4p 61.8p

1 Operating costs are stated before operating specific items.

2 For further details on alternative performance measures used, see pages 228 to 232.

Strategic Report Corporate Governance Financial Statements Additional Information

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157

Consolidated Statement of Comprehensive Income

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

Notes

Reported

52 weeks 2022

£m

Reported

52 weeks 2021

£m

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 11 (181) 660

Remeasurement gains/(losses) of the defined benefit surplus in RMPP and RMSEPP 11(c) 457 (1,998)

Remeasurement gains/(losses) of the defined benefit deficit in DBCBS 11(d) 172 (136)

Deferred tax associated with DBCBS 8 (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 (€500 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 8 (21) (7)

Total other comprehensive income/(expense) for the year 497 (1,441)

Total comprehensive income/(expense) for the year 1,109 (821)

Financial Statements

Royal Mail plc

Annual Report and Financial Statements 2021-22

158

Consolidated Balance Sheet

At 27 March 2022 and 28 March 2021

Notes

Reported at

27 March 2022

£m

Reported at

28 March 2021

£m

Non-current assets

Property, plant and equipment 13 3,571 3,007

Goodwill 15 428 378

Intangible assets 16 488 468

Investments in associates 17 1 5

Financial assets

Pension escrow investments 24 213 212

Derivatives 24 30 5

RMPP/RMSEPP retirement benefit surplus – net of withholding tax payable 11 2,723 2,389

Other receivables 20 94 100

Deferred tax assets 8 116 153

7,664 6,717

Assets held for sale 19 – 26

Current assets

Inventories 34 18

Trade and other receivables 20 1,659 1,640

Income tax receivable 41 9

Financial assets

Investments 24 70 –

Derivatives 24 74 2

Cash and cash equivalents 21/24 1,137 1,573

3,015 3,242

Total assets 10,679 9,985

Current liabilities

Trade and other payables 22 (2,332) (2,377)

Financial liabilities

Lease liabilities 14/24 (213) (197)

Derivatives 24 (8) (12)

Income tax payable (10) (15)

Provisions 25 (176) (124)

(2,739) (2,725)

Strategic Report Corporate Governance Financial Statements Additional Information

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159

Notes

Reported at

27 March 2022

£m

Reported at

28 March 2021

£m

Non-current liabilities

Financial liabilities

Interest-bearing loans and borrowings 23/24 (872) (895)

Lease liabilities 14/24 (1,128) (959)

Derivatives 24 (36) (36)

DBCBS retirement benefit deficit 11 (390) (394)

Provisions 25 (94) (105)

Other payables (32) (18)

Deferred tax liabilities 8 (54) (48)

(2,606) (2,455)

Total liabilities (5,345) (5,180)

Net assets 5,334 4,805

Equity

Share capital 26 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 Balance Sheet continued

At 27 March 2022 and 28 March 2021

Financial Statements

Royal Mail plc

Annual Report and Financial Statements 2021-22

160

Consolidated Statement of Changes in Equity

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

Share

capital

£m

Retained

earnings

£m

Foreign currency

translation

reserve

£m

Hedging

reserve

£m

Total

equity

£m

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 (see Note 18)

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 shares¹ – (17) – – (17)

Share buyback – (201) – – (201)

Dividend paid to equity holders of the Parent Company – (366) – – (366)

Share-based payments (see Note 18)

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.

A description of the reserves in the above table is included in Note 26.

Strategic Report Corporate Governance Financial Statements Additional Information

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161

Consolidated Statement of Cash Flows

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

Notes

Reported

52 weeks 2022

£m

Reported

52 weeks 2021

£m

Cash flow from operating activities

Profit before tax 662 726

Adjustment for:

Net pension interest (non-operating specific item) 11 (64) (117)

Net finance costs 7 51 38

Profit on disposal of property, plant and equipment (non-operating specific item) 6 (72) (36)

Specific items (operating) 6 7 7

Operating profit before specific items¹ 584 618

Adjustment for:

Depreciation and amortisation 540 554

EBITDA before specific items¹ 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 6/11 174 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 17 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

Financial Statements

Royal Mail plc

Annual Report and Financial Statements 2021-22

162

Notes

Reported

52 weeks 2022

£m

Reported

52 weeks 2021

£m

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 10 (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 21 1,137 1,573

1 For further details on APMs used, see pages 228 to 232.

2 Items comprise total gross capital expenditure within ‘in-year trading cash flow’ measure (see Financial Review).

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

163

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 (£) as that is the currency of the primary economic environment in

which the Group operates. All values are rounded to the nearest whole £million 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.

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. Details of the APMs

used by the Group are explained on pages 228 to 232.

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 and in hand of £276 million, cash equivalent investments of £825 million, current asset investments of £70 million

and the undrawn bank syndicate loan facility of £925 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 pages 62 to 63 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 £1 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.

Notes to the Consolidated Financial Statements

Financial Statements

Royal Mail plc

Annual Report and Financial Statements 2021-22

164

1. Basis of preparation and accounting policies (continued)

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cie 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Gre Group’s consolidated statement of comprehensive income. The Group exercises its judgement in determining the assumptions

tobto 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 11.

Strategic Report Corporate Governance Financial Statements Additional Information

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165

1. Basis of preparation and accounting policies (continued)

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 11.

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 (see Note 22).

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 £160 million (2020-21: £218 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.

Notes to the Consolidated Financial Statements continued

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1. Basis of preparation and accounting policies (continued)

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 £11 million

(2020-21: £16 million), recognised in the income statement as an operating specific item. The closing provision balance at 27 March

2022 was £56 million (2020-21: £69 million) (see Notes 6 and 25).

A 50 basis points decrease to the 1.77% discount rate used at 27 March 2022 would result in a £3 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 12.

Accounting policies

Revenue

Revenue relates principally to the delivery of letters and parcels for a wide range of public and private customers. In the majority

ofcases contracts contain a single service performance obligation, which is satisfied at the point of delivery. Transaction prices

forservices rendered are typically fixed and agreed in advance with the price being allocated in full to the single delivery

performanceobligation.

Revenue relating to public, retail and business stamp and meter sales is recognised when the sale is made, adjusted to reflect a value

of stamp and meter credits held but not used by the customer. Further details on this deferred revenue adjustment are provided in the

‘Key sources of estimation uncertainty’ section above.

In some cases, payment for services may be received in advance for a service that is due to be performed over a longer period of time,

for example a 12-month redirection service. In these cases, the payment is initially recognised on the balance sheet as a contract

liability (deferred revenue), with revenue recognised on a straight-line basis over the life of the contract, in line with the performance

ofthe service.

Where products are sold through third-party agents, such as the Post Office, but the responsibility to fulfil the service lies with the

Group, the revenue receivable is recognised gross with any commission payments being charged to operating costs. Where sales are

known to have occurred through a third-party vendor at the balance sheet date, and the proceeds are yet to be received, revenue for

thesale is recognised, with the amount still to be received recognised as a contract asset (accrued revenue).

Further details of the major revenue streams in each operating segment are provided below:

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Royal Mail

Revenue from direct sales of products or services is recognised when services are rendered, goods are delivered and the amount of

revenue that will flow to the Group can be measured reliably. Where payments are received for a service to be provided over a specified

length of time, payments received are recognised as deferred revenue and released to the income statement over the period that the

service is performed.

Account revenue is derived from specific contracts and recognised when the delivery of an item is complete. Contracted services that

have been paid for, but not yet rendered at the balance sheet date, are designated as deferred revenue.

Revenue derived from Network Access agreements is recognised when the delivery of the related items is complete.

General Logistics Systems (GLS)

Revenue is derived from specific parcel contracts and is recognised when the delivery of an item is complete.

People costs

These are costs incurred in respect of the Group’s employees and comprise wages and salaries, pensions and social security costs.

These costs are disclosed separately on the face of the income statement.

Distribution and conveyance costs

Distribution and conveyance costs relate to non-people costs incurred in transporting and delivering mail. These include conveyance

byrail, road, sea and air, together with costs incurred by international mail carriers, Parcelforce Worldwide delivery operators and

GLSsubcontractor costs. These costs are disclosed separately on the face of the income statement.

Infrastructure costs

These are costs primarily relating to the day-to-day operation of the delivery network and include depreciation/amortisation, IT and

property facilities management costs. These costs are disclosed separately on the face of the income statement.

Other operating costs

These are any operating costs which do not fall into the categories of people costs, distribution and conveyance costs or infrastructure

costs, including for example, Post Office Limited agency costs and consumables. Non-people costs relating to projects are also

included. Other operating costs exclude operating specific items.

Pension charge to cash difference adjustment

This adjustment represents the difference between the IAS 19 income statement pension charge rate of 24.6% (2020-21: 19.5%) for the

DBCBS pension plan and the cash contribution rate agreed with the Trustee of 15.6%. Management is of the view that 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 (see Note 6 and Note 11).

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.

Legacy/other items

Legacy items are unavoidable ongoing costs arising from historical events e.g. industrial diseases provision or Employee Free Shares

costs.

Amortisation of intangible assets in acquisitions

These charges, which arise as a direct consequence of the application of IFRS 3 ‘Business Combinations’, are separately identified

asManagement does not consider these costs to be representative of the trading performance of the Group.

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 Managements’ opinion, require separate identification.

Profit/loss on disposal of property, plant and equipment (PP&E)

Management separately identifies recurring profit/loss on disposal of PP&E as these disposals are not part of the Group’s trading

activity and are driven primarily by the business’ operations strategy.

Net pension interest

Management separately identifies pension interest income as this is not part of the Group’s trading activity and is driven byactuarial

calculations and assumptions which fluctuate each year.

Share-based payments

The Group operates a number of equity-settled, share-based compensation schemes under which the Group receives services from

employees as consideration for equity instruments (shares) of the Company. These include the HMRC-approved (Employee Free

Shares) Share Incentive Plan. The scheme is based on non-market conditions and does not vest until the employee completes a specific

period of service. Share-based payments awarded as part of Long Term Incentive Plans vest based on a combination of non-market

Notes to the Consolidated Financial Statements continued

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1. Basis of preparation and accounting policies (continued)

and market conditions. Share-based payments awarded as part of the Deferred Share Bonus Plan is a deferred share award, granted

toExecutive Directors at the end of the annual performance period, the grant being of equal value to the Annual Bonus, and subject to

continued employment over a three year vesting period. The fair value of the employee services received in exchange for the grant of

the shares is recognised as an expense in the income statement, with a corresponding credit entry in equity, as per the requirements

ofIFRS 2 ‘Share-based Payment’. The total amount expensed is determined by reference to the fair value of the equity instruments at

the date on which they are granted. The fair value of each award is measured with reference to the share price upon issue and using

theMonte-Carlo simulation model where appropriate.

The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be

satisfied. No expense is recognised for awards that do not ultimately vest. At each balance sheet date before vesting, the cumulative

expense is calculated, representing the extent to which the vesting period has expired and Management’s best estimate of the

achievement or otherwise of service conditions and of the number of equity instruments that will ultimately vest.

The movement in cumulative expense since the previous balance sheet date is recognised in the income statement, with a corresponding

entry in equity. The social security contributions payable in connection with the grant of shares is considered an integral part of the

grant itself, and the charge is treated as a cash-settled transaction.

Income tax and deferred tax

The charge for current income tax is based on the results for the reporting year as adjusted for items that are non-assessable or

disallowed. It is calculated using rates that have been substantively enacted at the balance sheet date.

Deferred income tax assets and liabilities are recognised for all taxable and deductible temporary differences and unused tax assets

and losses except the following:

 Initial recognition of goodwill.

 Initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction

affectsneither the accounting profit nor taxable profit and loss.

 Taxable temporary differences associated with investments in subsidiaries and associates, where the timing of the reversal of the

temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

 Deferred tax assets are recognised only to the extent that it is probable that taxable profit will be available against which they

canbeutilised.

The carrying amount of deferred tax assets is reviewed at each balance sheet date, against internal forecasts of future profits against

which those assets may be utilised and increased or reduced, to the extent that it is probable that sufficient taxable profit will be

available to allow them to be utilised.

Where tax returns remain subject to audit with the relevant tax authorities in the various jurisdictions in which the Group operates,

aprovision is made for uncertain tax items where the agreed amount could differ materially from Management’s estimates. Any such

provisions are included within the relevant current and deferred tax carrying amount.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the tax asset is realised

or the liability is settled, based on tax rates (and tax laws) that have been substantively enacted at the balance sheet date. Deferred tax

balances are not discounted.

Current and deferred tax is charged or credited directly to equity if it relates to items that are charged or credited directly to equity,

otherwise it is recognised in the income statement.

Where tax credits are claimed against eligible research and development costs, these amounts are credited against the relevant

expense or capitalised asset to match the accounting treatment applied to the original expenditure.

Earnings per share

Basic EPS from continuing operations is calculated by dividing the profit/loss from continuing operations by the weighted average

number of ordinary shares in issue.

Diluted EPS is calculated by adjusting the weighted average number of ordinary shares in issue on the assumption of conversion of

allpotentially dilutive ordinary shares arising from share-based payment schemes. These potential shares are treated as dilutive only

when their conversion to ordinary shares would decrease EPS from continuing operations.

Cash Generating Units (CGUs) of the Group

The Group consists of a number of CGUs, each possessing largely independent cash inflows. The UK network, through which millions

ofletters and parcels pass each day, is considered by Management to comprise two separate CGUs due to their distinct, individually

identifiable cash flows. These CGUs for impairment testing purposes are Royal Mail excluding Parcelforce Worldwide and Parcelforce

Worldwide. Certain other non-core entities are considered to be separate CGUs, albeit these are not material at a Group level.

In GLS, Management considers each country’s operations to represent a separate CGU. In relation to the testing of goodwill for

impairment, however, the operating and financial synergies arising on new business combinations within the GLS group are felt

byManagement to primarily benefit contiguous parts of the GLS network. For this reason, goodwill arising on new business

acquisitions has typically been allocated to one of the major networks designated as CGUs, i.e. mainland Europe; US Freight

(previouslyknown as Mountain Valley Express); US excluding US Freight; and, in Canada, Dicom. The exception to this approach

isthecurrent year acquisition of Rosenau Transport, which has been treated as a separate CGU for the current year.

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1. Basis of preparation and accounting policies (continued)

Impairment test for goodwill and CGUs

In assessing whether there has been an impairment of goodwill, a CGU or in some instances a specific asset, Management determines

whether the carrying value is higher than the recoverable amount. The recoverable amount is the higher of a CGU or asset’s fair value

less costs to sell (realisable value) and value in use. The value in use of the CGU/asset is calculated based on its discounted cash flows.

Details of the impairment review of the GLS CGUs are included in Note 15.

Royal Mail excluding Parcelforce Worldwide CGU

At 27 March 2022, the carrying value of this CGU was £1,366 million (2020-21: £1,174 million). The CGU has been assessed for

impairment bycomparing the carrying value of the CGU with its recoverable amount, assessed as being the ‘value in use.’ The value in

use has been calculated based on three-year forecast free cash flows, with the assumption that years four and five will be in line with

the performance of year three. Cash flows into perpetuity are assumed to have a growth rate of 0.5% (2020-21: 0.5%).

The recoverable amount was deemed to be significantly in excess of the carrying value of the CGU. The Group has conducted sensitivity

analysis on the impairment test for each of the key assumptions. This did not identify any plausible outcomes that would require the

CGU to be impaired.

Parcelforce Worldwide CGU

As a result of delays in the transformation of the Parcelforce Worldwide business, an impairment review of the Parcelforce Worldwide

CGU was undertaken in the 2019-20 reporting year. This review identified that the carrying value of the CGU was in excess of its

recoverable amount, which resulted in all non-monetary assets being written off and a £91 million impairment charge being reported

asa specific item in the income statement within the Royal Mail segment. For this reporting year, Management considers that it is not

appropriate to reverse the impairment charge, as the business has still to establish a sustainable financial performance.

Segment information

The Group’s operating segments are organised and managed separately according to the nature of the products and services provided,

with each segment representing an operating unit that offers different products and serves largely different markets.

The Board monitors the operating results of its main operating units separately for the purpose of making decisions about resource

allocation and performance assessment. Segment performance is evaluated based on the ‘operating profit before specific items’ measure.

The reportable operating segments are made up of business units based in the UK – within the Royal Mail segment, along with

otherparts of mainland Europe, the US and Canada, which are the constituent parts of the GLS segment. There is no aggregation

ofoperating segments.

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 arm’s length/fair value on the basis of charges reached through negotiation between the relevant

business units that form part of the segments.

There are no differences in the measurement of the respective segments’ profit/loss and the Consolidated Financial Statements

prepared under IFRS.

Property, plant and equipment

Property, plant and equipment is recognised at cost, including directly attributable costs in bringing the asset into working condition

forits intended use. Depreciation of property, plant and equipment is provided on a straight-line basis by reference to cost, the useful

economic lives of assets and their estimated residual values. The useful lives and residual values are reviewed annually and adjustments,

where applicable, are made on a prospective basis.

The lives assigned to major categories of property, plant and equipment are:

Land and buildings:

Freehold land Not depreciated

Freehold buildings Up to 50 years

Leasehold buildings The shorter of the period of the lease, or the estimated remaining useful life

Plant and machinery 3 to 15 years

Motor vehicles 2 to 12 years

Fixtures and equipment 2 to 15 years

All subsequent expenditure on property, plant and equipment is capitalised if it meets the recognition criteria, and the carrying amount

of those parts replaced is derecognised. All other expenditure, including repairs and maintenance is expensed in the income statement

as incurred.

Notes to the Consolidated Financial Statements continued

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1. Basis of preparation and accounting policies (continued)

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from

itsuse. Any gain or loss arising at derecognition of the asset (calculated as the difference between the net disposal proceeds and

thecarrying amount of the asset) is recognised in the income statement (non-operating specific item) in the year that the asset

isderecognised.

Gains or losses from the disposal of assets are recognised in the income statement at the point that all significant risks and rewards

ofownership are transferred.

Business combinations and goodwill

Business combinations are accounted for under IFRS 3 ‘Business Combinations’ using the purchase method. Any excess of the cost

ofthe business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities

at the date of acquisition is recognised in the balance sheet as goodwill and is not amortised.

After initial recognition, goodwill is stated at cost less any accumulated impairment losses. Goodwill arising from business combinations

is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be

impaired. For the purpose of such impairment reviews, goodwill is allocated to the relevant CGUs, or groups of CGUs, which are expected

to benefit from synergies of the combination.

A goodwill impairment loss is recognised in the income statement for the amount by which the carrying value of the related CGU,

orgroup of CGUs, exceeds the recoverable amount, which is the higher of a CGU’s net realisable value and its value in use. Goodwill

arising on the acquisition of equity-accounted entities is included in the cost of those entities and therefore not reported on the balance

sheet as goodwill.

Intangible assets

Intangible assets acquired as part of a business combination are capitalised separately from goodwill if the fair value can be measured

reliably on initial recognition. Intangible assets acquired separately or development costs that meet the criteria to be capitalised are

initially recognised at cost and are assessed to have a finite useful life, with key strategic assets generally having the longest lives.

Those assets with a finite life are amortised over their useful life but are reviewed for impairment annually or more frequently if events

or changes in circumstances indicate that the carrying value may be impaired. An impairment loss is recognised in the income statement

for the amount by which the carrying value of the intangible asset exceeds its recoverable amount, which is the higher of an asset’s net

realisable value and its value in use. Development costs capitalised and included as an asset within the Financial Statements have not

been treated as a realised loss for the purpose of determining distributable reserves.

Amortisation of intangible assets with finite lives is charged annually to the income statement on a straight-line basis as follows:

Customer listings 3 to 10 years

Software 3 to 10 years

Brands 1 to 10 years

Investments in associates

The Group’s investments in its associate companies are accounted for under the equity method of accounting. Under the equity method,

an investment is carried in the balance sheet at cost plus post-acquisition changes in the Group’s share of the net assets of the associate,

less any impairment in value. The income statement reflects the Group’s share of annual post-tax profits from the associates (currently

netted off other operating costs as the values are not material enough for separate disclosure).

Any goodwill arising on acquisition of an associate, representing the excess of the cost of the investment compared with the Group’s

share of the net fair value of the identifiable assets, liabilities and contingent liabilities acquired, is included in the carrying amount

andnot amortised.

Borrowing costs

Interest on borrowings related to the construction or development of qualifying assets is capitalised, until such time as the assets

aresubstantially ready for their intended use. Borrowing costs capitalised are deducted in determining taxable profit in the reporting

year in which they are incurred.

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1. Basis of preparation and accounting policies (continued)

Non-current assets held for sale

Non-current assets classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell.

Non-current assets are classified as held for sale if their carrying amounts will be recovered principally through a sale transaction,

rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset is available

forimmediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for

recognition as a completed sale within one year from the date of classification. Following their classification as held for sale, the

assets(including those in a disposal group) cease to be depreciated.

Leases

Under IFRS 16 a contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a

periodoftime in exchange for consideration. Under IFRS 16, the Group recognises a right of use asset and a lease liability at

theleasecommencement date for the majority of leases.

The right of use asset is measured initially at cost and is subsequently adjusted for any accumulated depreciation, impairment losses

or certain remeasurements of the lease liability.

The lease liability is measured initially at the commencement date at the present value of future lease payments discounted at the

rateinherent in the lease (for leases previously classed as finance leases) or, where this is not readily determinable, an appropriate

incremental borrowing rate (IBR). In practice, the majority of the lease calculations are performed using an IBR. The lease liability is

subsequently increased by the interest cost and decreased by payments made. Lease interest is shown within finance costs in the

statement of cash flows. The lease liability may also be remeasured where there are changes in future lease payments or changes

inthe assessment of future extension or termination options.

The Group has elected to apply the exemption from recognising leases for low value assets in line with existing Group policy, or

short-term leases (with a lease term of under 12 months) on the balance sheet. The Group continues to recognise lease expenses

forthese assets on a straight-line basis in the income statement over the lease term.

Where possible, the Group allocates the consideration in each contract between any lease and non-lease components, however,

wherethis is not possible the Group has elected to apply the practical expedient of including all of the contract costs in the calculation

of the lease asset and liability recognised as a single lease component.

The Group has lease break options in place for a majority of its property lease agreements. These options provide the Group with

greater flexibility in managing the UK estate. These break options have in the main, historically, not been exercised due to ongoing

operational requirements. Management has therefore made the decision that the reasonably certain length of the lease is the full lease

term, assuming the break option will not be exercised. In only exceptional cases, when reasonably certain that it will enact the break,

are leases recognised to the break date only. The unrecognised non-discounted cash flows in relation to these leases are £7 million

(2020-21: £15 million).

The Group adopts a practice of not including extension options in its leases. Where such clauses exist, they are not material.

IFRS 16 – incremental borrowing rates

The rate inherent in the lease is not readily determinable for the majority of leases previously classed as operating leases under IAS 17

and so an IBR is used. These leases primarily relate to property and motor vehicles.

The IBR is the rate of interest that a lessee would have to pay to borrow, over a similar term, and with a similar security, the funds

necessary to obtain an asset of a similar value to the right of use asset in a similar economic environment.

In considering the appropriate IBR to apply, the Group has adopted a three-step approach. This approach begins with an appropriate

risk-free base rate; adjusts this rate to reflect the cost of company-specific unsecured borrowing; and, finally, considers the need to

adjust the rate determined to reflect the underlying leased asset acting as collateral.

From the evidence obtained, Management has concluded that for the Royal Mail business, lenders do not make adjustments to the

borrowing rates offered on lending, based upon the underlying asset to be obtained. The key factors in the borrowing rates available

toRoyal Mail are judged to be the current credit rating of the Group (BBB) and the length of the borrowing term required.

On the basis of the work performed, Royal Mail has treated assets being held for a similar length of time as having a similarly calculated

IBR, with assets being grouped according to lease length, both at transition and in the future. By grouping assets in this way, a rate card

has been produced, to be updated periodically, which can be applied to all future leases requiring an IBR. Royal Mail has based IBR rates

on UK BBB corporate bond yields, adjusted to reflect the different payment profile between a bond and a lease.

The GLS business has followed a similar methodology and grouping by lease length, to that used in Royal Mail. However, instead of

basing the yields on corporate bond yield curves, which are not readily obtainable for all GLS currencies, a sovereign bond yield curve

for the relevant country has been used as the starting point and an appropriate margin applied to this based upon consideration of

consolidated GLS quantitative and qualitative information.

Notes to the Consolidated Financial Statements continued

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1. Basis of preparation and accounting policies (continued)

Trade receivables

Trade receivables are recognised and carried at the original invoice amount less an allowance for any non-collectable amounts. This

loss allowance is calculated by first creating an allowance for identified trade receivables where collection of the full amount is no

longer probable, and then applying lifetime expected credit loss (ECL) rates to the remaining unprovided balance. ECL rates have been

set by ageing category based on historical loss rates, with adjustments made to reflect forward-looking information where material.

In the current year and prior year, considerations around COVID-19 and the macro-economic situation has resulted in an increase to

expected credit losses above our standard provisioning rate. The below rates have been applied to the Royal Mail debt. In GLS rates are

country specific to reflect the economic conditions of individual countries.

2021-22

%

2020-21

%

Not yet overdue 0.21 0.10

Past due not more than one month 1.96 1.88

Past due more than one month and not more than two months 12.57 16.55

Past due more than two months 57.69 73.13

Movements in the loss allowance are recognised in the income statement within other operating costs. At the point that a debt is

considered unrecoverable, it is written off against the allowance for trade receivables. Subsequent recoveries of amounts previously

written off are credited against other operating costs in the income statement.

Inventories

Inventories are valued on a weighted average cost basis and carried at the lower of cost and net realisable value. Cost includes all

directexpenditure and other costs attributable in bringing inventories to their present location and condition.

Trade payables

Trade payables are recorded initially at fair value and subsequently measured at amortised cost. Generally, this results in their

recognition at their nominal value.

The Group operates a supply chain finance arrangement for small and medium suppliers. This form of reverse financing allows

suppliers to obtain early access to funding. Suppliers may choose to access payment as soon as their invoices are processed rather

than the standard payment terms by paying a financing fee to the scheme provider. The Group pays the provider of the scheme on the

due date of the invoices. This scheme does not therefore assist the Group in the management of working capital.

As the scheme has not led to a substantial modification in the terms of the financial liability, the Group continues to treat the amounts

owed within trade payables. All cash flows associated with the programme are included within operating cash flows as they continue

tobe part of the normal operating cycle of the Group. There is no impact on net debt, as amounts owed continue to be reported within

trade payables.

The balance owed on the facility at 27 March 2022 was £66 million (28 March 2021: £36 million).

Capital management

The Group has established five key objectives for capital management. Details of these objectives are included in the Financial Review.

Financial instruments

Financial assets within the scope of IFRS 9 ‘Financial Instruments’ are classified as financial assets at: fair value through the profit

andloss (FVTPL) if they are not part of an effective hedge designation (held for trading); amortised cost: or fair value through other

comprehensive income (FVOCI) as appropriate. Financial liabilities within the scope of IFRS 9 are classified as either financial liabilities

at FVTPL or financial liabilities measured at amortised cost.

The Group determines the classification of its financial instruments at initial recognition and re-evaluates this designation at each

reporting date. When financial instruments are recognised initially, they are measured at fair value, being the transaction price plus,

inthe case of financial instruments not at FVTPL, any directly attributable transactional costs. The Group only has financial assets

andliabilities measured at amortised cost and derivative assets and liabilities measured at FVTPL, if they are not part of an effective

hedge designation.

The subsequent measurement of financial instruments depends on their classification as follows:

Financial assets measured at amortised cost

These are non-derivative financial assets which are held for the purpose of collecting contractual cash flows (held to collect), including

interest. These assets are carried at amortised cost with finance income recognised in the income statement using the effective

interest rate method. Any gains or losses are recognised in the income statement when the assets are derecognised or impaired.

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1. Basis of preparation and accounting policies (continued)

Financial liabilities measured at amortised cost

All non-derivative financial liabilities are classified as financial liabilities measured at amortised cost. These liabilities are measured

atamortised cost with finance costs recognised in the income statement using the effective interest method. Any gains or losses are

recognised in the income statement when the liabilities are derecognised or impaired.

Cash and cash equivalents

Cash and cash equivalents in the balance sheet comprise cash at bank and in hand and short-term deposits (cash equivalents)

withanoriginal maturity date of three months or less. In addition, the Group invests surplus cash in money market funds which hold

baskets of cash, cash equivalent and high-credit-rating debt-based securities with short-term maturity. These funds are highly liquid

and investments can be redeemed either the same day or within a week, so are categorised as cash equivalents on the basis they are

areadily available source of cash. For the purpose of the statement of cash flows, cash and cash equivalents consist of cash and cash

equivalents as defined above, net of bank overdrafts. Money market funds are designated as FVTPL, all other cash equivalents are

classified as financial assets at amortised cost.

Financial assets – pension escrow investments

Pension escrow investments comprise a Royal Mail Senior Executives Pension Plan money market fund investment and a Royal Mail

Pension Plan money market fund investment. See Note 11 to the Financial Statements for further details.

Financial assets – other investments

Other investments comprise short-term deposits (other investments) with banks with an original maturity of more than three months.

Short-term deposits are classified as financial assets at amortised cost.

Financial liabilities – interest-bearing loans and borrowings

All loans and borrowings are classified as financial liabilities measured at amortised cost. The €500 million and €550 million bonds

aremeasured at amortised cost in Euro and converted to Sterling at the closing spot Sterling/Euro exchange rate.

Derivative financial instruments and hedging programmes

The Group uses derivative instruments such as foreign currency contracts in order to manage the risk profile of any underlying risk

exposure of the Group, in line with the Group’s treasury management policies. Such derivative financial instruments are initially stated

at fair value. For the purpose of hedge accounting, hedges are classified as cash flow hedges where they hedge exposure to variability

in cash flows that is attributable either to a particular risk associated with a recognised asset or liability, or to a highly probable

forecast transaction.

In relation to cash flow hedges to hedge the interest rate, foreign exchange or commodity price risk of firm commitments that meet

theconditions for hedge accounting, the portion of the gain or loss on the hedging instrument that is determined to relate to an

effective hedge is recognised directly in equity and the ineffective portion is recognised in the income statement.

When the hedged firm commitment results in the recognition of a non-financial asset or non-financial liability, then at the time the

asset or liability is recognised, the associated gains or losses that had previously been recognised in equity are included in the initial

measurement of the acquisition cost or other carrying amount of the asset or liability. For all other cash flow hedges, the gains or

losses that are recognised in equity are transferred to the income statement in the same reporting year in which the hedged firm

commitment affects the net profit/loss, for example when the hedged transaction actually occurs.

Derivatives that do not qualify for hedge accounting are classified as FVTPL and any gains or losses arising from changes in fair value

are taken directly to the income statement in the year. Derivatives are valued by using quoted forward prices for the underlying

commodity/currency and discounted using quoted interest rates (both as at the close of business on the balance sheet date). Hence

derivative assets and liabilities are within Level 2 of the fair value hierarchy as defined within IFRS 13 ‘Fair Value Measurement’ (see

details of the fair value hierarchy below).

Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for

hedge accounting. At that point, any cumulative gain or loss on the hedging instrument recognised in equity is kept in equity until the

forecast transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity

is transferred to the income statement in the reporting year.

Fair value measurement of financial instruments

All assets and liabilities for which fair value is measured or disclosed in the Financial Statements are categorised within the fair value

hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilities.

Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly

(i.e.as prices) or indirectly (i.e. derived from prices).

Level 3 – Inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The fair value of quoted investments is determined by reference to bid prices at the close of business on the balance sheet date.

Notes to the Consolidated Financial Statements continued

Financial Statements

Royal Mail plc

Annual Report and Financial Statements 2021-22

174

1. Basis of preparation and accounting policies (continued)

Where there is no active market, fair value is determined using valuation techniques. These include using recent arm’s length market

transactions; reference to the current market value of another instrument which is substantially the same; and discounted cash flow

analysis and pricing models.

The Group determines whether any transfers have occurred between levels in the hierarchy by reassessing categorisation at the end

ofeach reporting year. For the purposes of disclosing the Level 2 fair value of investments held at amortised cost in the balance sheet,

in the absence of quoted market prices, fair values are calculated by discounting the future cash flows of the financial instrument using

quoted equivalent interest rates as at close of business on the balance sheet date. For the €500 million bond and the €550 million bond,

the disclosed fair values are calculated as the closing market bond prices converted to Sterling using the closing spot Sterling/Euro

exchange rate.

For the purposes of comparing carrying amounts with fair value, fair values have been calculated using current market prices

(bondprice, interest rates, forward exchange rates and commodity prices) and discounted using appropriate discount rates.

Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that

an outflow of resources will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at an

appropriate pre-tax rate. Accounting estimates used in calculating the provisions are explained further in the ‘Other estimates’

sectionof this Note.

Contingent liabilities

Contingent liabilities are possible obligations whose existence depends on the outcome of uncertain future events or present obligations

where the outflows of resources are uncertain or cannot be measured reliably. Contingent liabilities are not recognised in the Financial

Statements but are disclosed unless an outflow of resources is considered to be remote.

Contingent assets

Contingent assets are possible assets whose existence will be confirmed by the occurrence or non-occurrence of uncertain future

events that are not wholly within the control of the entity. Contingent assets are not recognised, but they are disclosed when it is more

likely than not that an inflow of benefits will occur. However, when the inflow of benefits is virtually certain, an asset is recognised on

the Balance Sheet, because the asset is no longer considered to be contingent.

Dividends

Distributions to owners of the Company are not recognised in the income statement under IFRS, but are disclosed as a component of

the movement in shareholders’ equity. A liability is recorded for a dividend when the dividend is approved by the Company’s shareholders

but not paid at the year end. Interim dividends are recognised as a distribution when paid.

Pensions and other post-retirement benefits

Defined benefit pension plan assets are measured at fair value. Listed securities are valued at bid price or the last traded price, depending

on the convention of the stock exchange on which they are quoted. Unquoted securities and other pooled investment vehicles are valued

using published prices, the latest information from investment managers, or at cost less any necessary provisions for impairment.

Direct property held is valued in the basis of open market value at the year end date, in accordance with RICS valuation standards.

Further details on the measurement of pension assets are included within the ‘Key Sources of Estimation Uncertainty’ section above.

Liabilities are measured on an actuarial basis using the projected unit credit method and discounted at a rate equivalent to the current

rate of return on a high-quality corporate bond of equivalent currency and term. The resulting defined benefit asset or liability is

presented separately on the face of the balance sheet. The amount of any pension surplus that can be recognised is limited to the

economic benefits unconditionally available in the form of refunds or reductions in future contributions.

Where the economic benefit to be obtained is in the form of a refund, this is recognised less tax expense, in line with IFRIC 14. The

Group considers this tax to be a tax other than income tax, i.e. ‘withholding tax’, and the pension surplus is presented net of this tax

onthe balance sheet.

Full actuarial/cash funding valuations are carried out at intervals not normally exceeding three years as determined by the Trustee and,

with appropriate updates and accounting adjustments at each balance sheet date, form the basis of the surplus disclosed.

For defined benefit plans, the amounts charged to operating profit are the current service costs and any gains and losses arising from

settlements, curtailments and past service costs. The amount resulting from applying the plan’s discount rate (for liabilities) to the

pension surplus at the beginning of the reporting year is recognised as net pension interest in the income statement. Remeasurement

gains and losses are recognised immediately in the statement of comprehensive income. Any deferred tax movement associated with

the remeasurement gains and losses is recognised immediately in the statement of comprehensive income. The Group recognises a

constructive obligation to provide future increases to benefits under the lump sum DBCBS. This is charged to current service costs in

the income statement. Further details on the constructive obligation are included within Note 11 to the Financial Statements.

For defined contribution plans, the Group’s contributions are charged to operating profit (within people costs) in the year to which the

contributions relate. Overseas subsidiaries make separate arrangements for the provision of pensions and other post-retirement benefits.

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

175

1. Basis of preparation and accounting policies (continued)

Foreign currencies

The functional and presentational currency of Royal Mail plc is Sterling (£). The functional currency of the overseas subsidiaries in

Europe is mainly the Euro (€), in the US it is the Dollar (US$) and in Canada it is the Canadian Dollar (CAD).

The assets and liabilities of foreign operations are translated at the rate of exchange ruling at the balance sheet date. The trading

results of foreign operations are translated at the average rates of exchange for the reporting year, being a reasonable approximation

to the actual transaction rate. The exchange rate differences arising on the translation, since the date of transition to IFRS, are taken

directly to the foreign currency translation reserve in equity.

Foreign currency exchange differences arising from translation of the €500 million bond and the Euro-denominated leases (designated

as hedges of the net investment in GLS) to closing Sterling/Euro exchange rates are deferred to the foreign currency translation reserve

inequity. These exchange differences would be released from equity to the income statement as part of the gain or loss, only if GLS

wassold.

Transactions in foreign currencies are initially recorded in the functional currency by applying the spot exchange rate ruling during the

month of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency

rate of exchange ruling at the balance sheet date. Other than the €500 million bond and the Euro-denominated leases mentioned above,

currently, hedge accounting is not claimed for any other monetary assets and liabilities except the €550 million bond, which is hedged

by a cross-currency swap. All differences are therefore taken to the income statement, except for differences on monetary assets and

liabilities that form part of the Group’s net investment in a foreign operation. These are taken directly to equity until the disposal of the

net investment occurs, at which time they are recognised in profit or loss.

Non-monetary items that are measured in terms of their historical cost in a foreign currency are translated using the exchange rates

as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the

exchange rates at the date when the fair value is determined.

2. Segment information

The Group’s operating segments are based on geographic business units whose primary services and products relate to the delivery

ofparcels and letters. These segments are evaluated regularly by the Royal Mail plc Board – the Chief Operating Decision Maker (CODM)

as defined by IFRS 8 ‘Operating Segments’ – in deciding how to allocate resources and assess performance.

A key measure of segment performance is operating profit before specific items. This measure of performance is disclosed on an

‘adjusted’ basis, a non-IFRS measure, excluding specific items and the pension charge to cash difference adjustment (see pages 228 to

232). 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.

52 weeks 2022 Adjusted

Specific items,

and pension

adjustment in

people costs Reported

Continuing operations

Royal Mail

(UK operations)

£m

GLS

(Non-UK

operations)

£m

Eliminations

1

£m

Group

£m

Royal Mail

(UK operations)

£m

GLS

(Non-UK

operations)

£m

Group

£m

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

Notes to the Consolidated Financial Statements continued

Financial Statements

Royal Mail plc

Annual Report and Financial Statements 2021-22

176

2. Segment information (continued)

52 weeks 2021 Adjusted

Specific items, and pension

adjustment in people costs Reported

Continuing operations

Royal Mail

(UK operations)

£m

GLS

(Non-UK

operations)

£m

Eliminations

1

£m

Group

£m

Royal Mail

(UK operations)

£m

GLS

(Non-UK

operations)

£m

Group

£m

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.

52 weeks 2022

Royal Mail

(UK operations)

£m

GLS

(Non-UK

Operations)

£m

Total

£m

Depreciation (309) (132) (441)

Amortisation of intangible assets (mainly software) (88) (11) (99)

Non-current assets 2,879 1,703 4,582

52 weeks 2021

Royal Mail

(UK operations)

£m

GLS

(Non-UK

Operations)

£m

Total

£m

Depreciation (308) (124) (432)

Amortisation of intangible assets (mainly software) (107) (15) (122)

Non-current assets 2,596 1,362 3,958

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

177

3. Revenue

52 weeks 2022

Royal Mail

£m

GLS

£m

Intragroup

revenue

1

£m

Group

£m

Parcels 4,800 4,219 (21) 8,998

Letters 3,714 – – 3,714

Total 8,514 4,219 (21) 12,712

52 weeks 2021

Royal Mail²

£m

GLS

£m

Intragroup

revenue

1

£m

Group²

£m

Parcels 5,133 4,040 (51) 9,122

Letters 3,516 – – 3,516

Total 8,649 4,040 (51) 12,638

1 Eliminations relate to intragroup revenue from trading between Royal Mail and GLS. This is due to Parcelforce Worldwide being GLS’ partner in the UK.

2 The prior year’s letter and parcel revenue split has been re-presented to reflect a reallocation of international revenue between letters and parcels.

During the year, around £300 million (2020-21: £290 million) of revenue was recognised which was previously held as a deferred

revenue balance at 28 March 2021 (2020-21: 29 March 2020). This balance largely relates to stamps held and not yet used by customers

and is recognised as ‘advance customer payments’ within ‘current trade and other payables’ (see Note 22).

4. Operating costs

Operating profit before specific items is stated after charging the following operating costs:

52 weeks

2022

£m

52 weeks

2021

£m

People costs (see Note 5) (6,665) (6,554)

Distribution and conveyance costs

Charges from overseas postal administrations (271) (343)

Fuel costs (198) (202)

Infrastructure costs

Depreciation, amortisation and impairment (540) (554)

Charge for property, plant and equipment (see Note 13) (441) (432)

Charge for intangible assets (see Note 16)

1

(99) (122)

Other operating costs

Post Office Limited charges (361) (405)

Inventory expensed (36) (53)

1 Excludes £16 million (2020-21: £19 million) amortisation of intangible assets in acquisitions, presented as an operating specific item in the income statement.

Notes to the Consolidated Financial Statements continued

Financial Statements

Royal Mail plc

Annual Report and Financial Statements 2021-22

178

4. Operating costs (continued)

Regulatory body costs

The following disclosure is relevant in understanding the extent of ongoing compliance costs in relation to the regulation of the Group:

52 weeks

2022

£m

52 weeks

2021

£m

Ofcom administrative charge (6) (5)

Citizens Advice/Citizens Advice Scotland/Consumer Council for Northern Ireland (1) (1)

Total (7) (6)

Auditor’s fees

52 weeks

2022

£’000

52 weeks

2021

£’000

Audit of Group statutory Financial Statements (1,420) (1,318)

Other fees to auditor:

Audit of the accounts of subsidiaries (1,613) (1,510)

Review of the interim financial information (265) (240)

Regulatory audit (144) (131)

Other assurance (11) (11)

Total (3,453) (3,210)

The 2021-22 fees relate to the services of the Group’s appointed auditor KPMG LLP. In addition to the above amounts, KPMG LLP was

paid by the respective Trustees £111,500 for the audit of the Royal Mail Pension Plan (2020-21: £105,971) and £34,500 for the audit of the

Royal Mail Defined Contribution Plan (2020-21: £32,950).

5. People information

52 weeks

2022

£m

52 weeks

2021

£m

Wages and salaries (5,398) (5,363)

Royal Mail

1

(4,587) (4,605)

GLS (811) (758)

Pensions (see Note 11) (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 £81 million (2020-21: £109 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 flow² 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.

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

179

5. People information (continued)

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

2022

52 weeks

2021

52 weeks

2022

52 weeks

2021

52 weeks

2022

52 weeks

2021

52 weeks

2022

52 weeks

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 For Royal Mail, 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. GLS has changed its FTE calculation methodology in the reporting year to align better with Royal Mail. This change has been applied

prospectively and no changes have been made to prior year numbers.

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

Directors’ remuneration

52 weeks

2022

£’000

52 weeks

2021

£’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. Details of the pension contributions are included in the single figure tables of the Directors’

Remuneration Report on page 110. The highest paid Director details are included in the single figure tables of the Directors’ Remuneration Report on page 126.

6. Specific items and pension charge to cash difference adjustment

52 weeks

2022

£m

52 weeks

2021

£m

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 £11 million release (2020-21: £16 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 25 for further details).

The tax credit of £62 million (2020-21: £37 million) includes a net credit of £30 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 £32 million (2020-21: £nil) in relation to the

remeasurement of certain UK deferred tax assets and liabilities at the future UK corporation tax rate of 25%.

Notes to the Consolidated Financial Statements continued

Financial Statements

Royal Mail plc

Annual Report and Financial Statements 2021-22

180

7. Net finance costs

52 weeks

2022

£m

52 weeks

2021

£m

Unwinding of discount relating to industrial diseases claims provision (1) (1)

Other interest payable (56) (54)

Bank syndicate loan facility

Loans and borrowings – (3)

Unused facility fees (1) (1)

Arrangement fees (1) (2)

€500 million and €550 million bonds (17) (17)

Interest rate swap costs on €550 million bond (7) (7)

Leases (29) (26)

Capitalisation of borrowing costs on specific qualifying assets 3 4

Other finance costs (4) (2)

Total finance costs (57) (55)

Total finance income – interest receivable on financial assets 6 17

Total net finance costs (51) (38)

8. Taxation

52 weeks

2022

£m

52 weeks

2021

£m

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 (charged)/credited 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

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

181

8. Taxation (continued)

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

2022

£m

52 weeks

2021

£m

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

2022

£m

52 weeks

2021

£m

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 years¹ 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 £23 million credit relating to a reduced uncertain tax provision against prior year claims under the patent box regime.

Notes to the Consolidated Financial Statements continued

Financial Statements

Royal Mail plc

Annual Report and Financial Statements 2021-22

182

8. Taxation (continued)

Deferred tax

Deferred tax by

balancesheetcategory

52 weeks 2022

At

29 March

2021

£m

Credited/

(charged) to

income

statement

£m

Charged

to other

comprehensive

income

£m

Credited/

(charged)

directly in equity

£m

Acquisition of

subsidiaries

£m

Jurisdictional

right of offset

£m

At

27 March

2022

£m

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

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

183

8. Taxation (continued)

Deferred tax by balance sheet

category 52 weeks 2021

At

30 March

2020

£m

Credited/

(charged) to

income

statement

£m

Credited/

(charged) to other

comprehensive

income

£m

Credited directly

in equity

£m

Credited/

(charged) to

foreign exchange

reserve

£m

Jurisdictional

right of offset

£m

At

28 March

2021

£m

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.

Deferred tax – balance sheet presentation

At

27 March

2022

£m

At

28 March

2021

£m

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

Notes to the Consolidated Financial Statements continued

Financial Statements

Royal Mail plc

Annual Report and Financial Statements 2021-22

184

8. Taxation (continued)

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 £256 million (2020-21: £263 million) with a tax

value of £75 million (2020-21: £73 million). Unrecognised deferred tax in relation to tax losses comprises £72 million (2020-21: £70 million)

relating to losses of £244 million (2020-21: £236 million) in GLS that are available for offset against future profits if generated in the

relevant GLS companies, and £2 million (2020-21: £1 million) in relation to £7 million (2020-21: £6 million) of historical UK non-trading

and capital losses carried forward. Other unrecognised amounts comprise £1 million (2020-21: £2 million) relating to GLS other

temporary differences of £5 million (2020-21: £21 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 £177 million (2020-21: £186 million) of capital losses, the tax effect of which is

£44 million (2020-21: £35 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 £444 million (2020-21: £383 million) of gains for

which rollover relief has been claimed, the tax effect of which is £111 million (2020-21: £73 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.

9. Earnings per share

52 weeks 2022 52 weeks 2021

Reported

Specific items

and pension

adjustment

1

Adjusted Reported

Specific items

and pension

adjustment

1

Adjusted

Profit for the year (£ 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 on page 69.

2 During the year 43,806,525 shares were purchased as part of the buyback programme announced on 18 November 2021 (see Note 26).

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.

These plans are for certain Senior Management and are disclosed in more detail in Note 18.

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 (see Note 26). The Company, however, does not hold any

shares in treasury.

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Royal Mail plc

Annual Report and Financial Statements 2021-22

185

10. Dividends

Dividends on ordinary shares

52 weeks

2022

Pence per share

52 weeks

2021

Pence per share

52 weeks

2022

£m

52 weeks

2021

£m

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.

11. Retirement benefit plans

Summary pension information

52 weeks

2022

£m

52 weeks

2021

£m

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

2022

’000

At 28 March

2021

’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

£9 million (2020-21: £9 million) and the DBCBS of £5 million (2020-21: £5 million) and a £6 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 ‘Guaranteed 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.

Notes to the Consolidated Financial Statements continued

Financial Statements

Royal Mail plc

Annual Report and Financial Statements 2021-22

186

11. Retirement benefit plans (continued)

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 £111 million in 2020-21 to £116 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 for

members (or

beneficiaries

ofmembers)

Before 1 December 1971 On or after 1 December 1971

andbefore 1 April 1987

or

for members of Section A whochose

to receive SectionBbenefits.

On or after 1 April 1987 andbefore

1 April 2008

Terms Pension of 1/80th of pensionable salary plus a tax-free

lumpsumof3/80thsof pensionable salary for each year

ofpensionableservice, until 31 March 2018.

Pension of 1/60th of pensionable

salary for each yearof pensionable

service, 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.

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

187

11. Retirement benefit plans (continued)

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 of

theparticipating employers

To help protect benefits, the Trustee Board monitors the financial strength of the participating employers.

Investing contributions The Trustee Board invests the member and employer contributions in a mix of equities, bonds,

property and other investments including derivatives. It holds the contributions and investments

onbehalf of the members.

Keeping members informed The Trustee Board sends active members an annual benefit illustration together with a summary

ofthe RMPP’s annual report and accounts.

Acting in the best interests

ofallRMPP beneficiaries

The Trustee Board must pay all benefits as they fall due under the Trust Deed and Rules.

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. See Note 24 to the Financial Statements for further details.

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 £312 million (28 March 2021: £364 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 £500,000 per annum from April 2022, and will be paid annually in arrears.

Unfunded pension

A liability of £2 million (2020-21: £2 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.

6 In accordance with IAS 19.

Notes to the Consolidated Financial Statements continued

Financial Statements

Royal Mail plc

Annual Report and Financial Statements 2021-22

188

11. Retirement benefit plans (continued)

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 May 2022) The first full valuation has been performed as at 31 March

2021 and was agreed on 17 May 2022

Valuation The triennial valuation has been agreed with the

Trustee and the approach has changed to a self-

sufficiency basis. The surplus calculated for the

purposes of the March 2021 triennial valuation was

£661 million. Based on a set of assumptions which

form the basis for the March 2021 valuation and then

rolled forward, the actuarial surplus at 31 March 2022

was estimated to be around £500 million.

A draft funding position at 31 March 2022 has been

calculated based on the assumption that the funding

surplus is equal to the amount held in respect of the risk

reserve. Under this method, the DBCBS actuarial surplus

was estimated to be around £40 million at 31 March 2022.

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

DBCBS RMPP and RMSEPP

At

27 March

2022

£m

At

28 March

2021

£m

At

27 March

2022

£m

At

28 March

2021

£m

Fair value of plans’ assets (11(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)7 (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 £1,464 million (at 28 March 2021: £1,283 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 £8 million (at 28 March 2021: £9 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£3 million (at 28 March 2021: £3 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.

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

189

11. Retirement benefit plans (continued)

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.£6 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

2022

At 28 March

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%)

Rate of increase in pensionable salaries

10

RPI – 0.1% RPI – 0.1%

Rate of increase for deferred pensions – RMPP CPI CPI

Rate of pension increases – RMPP Sections A/B CPI CPI

Rate of pension increases – RMPP Section C

10

RPI – 0.1% RPI – 0.1%

Rate of pension increases – RMSEPP members transferred from Section A or B of RMPP CPI CPI

Rate of pension increases – RMSEPP all other members

10

RPI – 0.1% RPI – 0.1%

Rate of pension increases – DBCBS benefits CPI + 2.0% CPI + 2.0%

Life expectancy from age 60 – for a current 40/60 year old male RMPP member 27/25 years 28/26 years

Life expectancy from age 60 – for a current 40/60 year old female RMPP member 29/27 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.

Notes to the Consolidated Financial Statements continued

Financial Statements

Royal Mail plc

Annual Report and Financial Statements 2021-22

190

11. Retirement benefit plans (continued)

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.£220 million and those of RMSEPP by c.£9 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.£135 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:

Key assumption change

At 27 March 2022 At 28 March 2021

Potential

increase in

DBCBS liabilities

£m

Potential

increase in

RMPP liabilities

£m

Potential

increasein

DBCBS liabilities

£m

Potential

increasein

RMPP liabilities

£m

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 –

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

191

11. Retirement benefit plans (continued)

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

£m

Unquoted

£m

Total

£m

Quoted

£m

Unquoted

£m

Total

£m

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 £8,401 million (28 March 2021: £9,068 million) of index-linked gilts, £691 million (28 March 2021: £454 million) of bonds, £145 million (28 March

2021: £157 million) in short-term money market funds and £26 million of swaps (28 March 2021: £(18) million), offset by negative fair value investments of£900million

(28 March 2021: £457 million) in repurchase agreements and £44 million (28 March 2021: £27 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 £274 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: £nil). £8.4 billion

(28 March2021: £9.1 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: £nil).

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.

Notes to the Consolidated Financial Statements continued

Financial Statements

Royal Mail plc

Annual Report and Financial Statements 2021-22

192

11. Retirement benefit plans (continued)

Risk exposure and investment strategy

The Group’s defined benefit schemes face similar risks to other UK defined benefit schemes. Some of the key financial risks and

mitigating actions are set out in the table below.

Investment

market

movements

The risks inherent in the investment markets are partially mitigated by pursuing a widely diversified approach

across asset classes and investment managers. The RMPP uses derivatives (such as swaps, forwards and

options), from time to time to reduce risks whilst maintaining expected investment returns.

In addition to property and cash, the RMSEPP holds two buy-in annuity policies totalling £312 million at 27 March 2022

(28 March 2021: £364 million) to match its liabilities.

Interest rates and

inflation changes

The legacy RMPP section’s liabilities and assets are impacted by movements in interest rates and inflation. In order to

reduce the risk of movements in these rates driving the RMPP into a funding deficit, the RMPP Trustee has hedged the

funding liabilities. It has done this predominantly through investment in index-linked gilts and derivatives.

The nature of the risks and their mitigation are similar for the DBCBS, although the level of hedging is less than the RMPP.

In the 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 £nil (28 March 2021: negative £2 million) included in the

derivative values above. The TRS economically offsets £100 million of the plan’s global equity market exposure

at27 March 2022 (28 March 2021: £60 million).

Changes in life

expectancy

The RMPP’s liabilities could be impacted by longer than expected life expectancy, resulting in higher than expected

payout levels.

Although this risk is not hedged, mortality studies are undertaken as part of actuarial funding valuations and

where appropriate updated assumptions are adopted for accounting valuations.

Changes in

corporate and

Government

bondyields

A fall in yields on AA rated corporate bonds, used to set the IAS 19 discount rates, will lead to an increase in the

IAS19 liabilities.

The 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.

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193

11. Retirement benefit plans (continued)

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 asset Defined benefit liability Net defined benefit surplus

2022

£m

2021

£m

2022

£m

2021

£m

2022

£m

2021

£m

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.

Notes to the Consolidated Financial Statements continued

Financial Statements

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Annual Report and Financial Statements 2021-22

194

11. Retirement benefit plans (continued)

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 asset Defined benefit liability Net defined benefit deficit

2022

£m

2021

£m

2022

£m

2021

£m

2022

£m

2021

£m

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 £99 million (2020-21: £106 million).

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195

12. 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 £1 million.

Rosenau

Transport

£m

Other

£m

Total

£m

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 £49 million

arising onthese acquisitions is tax deductible.

Revenue generated from these businesses since the date of acquisition is £45 million and profit is £4 million. If these combinations had

taken place at the beginning of the financial year, revenue generated would have been £126 million and the profit would have been

£9 million.

Of the deferred consideration of £17 million, £14 million is contingent on the performance of the acquired businesses.

Notes to the Consolidated Financial Statements continued

Financial Statements

Royal Mail plc

Annual Report and Financial Statements 2021-22

196

13. Property, plant and equipment

Land and

buildings

£m

Plant and

machinery

£m

Motor vehicles

£m

Fixtures and

equipment

£m

Total

£m

Cost

At 29 March 2021 4,242 1,278 991 423 6,934

Exchange rate movements (15) (10) 2 (3) (26)

Reclassification – (1) 1 2 2

Modifications 41 – – – 41

Additions 427 203 125 99 854

Disposals (160) (7) (34) (27) (228)

Acquisition of subsidiary 122 4 27 1 154

Reclassification to non-current assets held for sale (27) – – – (27)

At 27 March 2022 4,630 1,467 1,112 495 7,704

Depreciation and impairment

At 29 March 2021 2,222 907 465 333 3,927

Exchange rate movements (6) (5) 1 (2) (12)

Reclassification – – 1 2 3

Modifications (1) – – – (1)

Charge for the year 228 73 101 39 441

Disposals (160) (7) (31) (26) (224)

Reclassification to non-current assets held for sale (1) – – – (1)

At 27 March 2022 2,282 968 537 346 4,133

Net book value:

At 27 March 2022 2,348 499 575 149 3,571

At 28 March 2021 2,020 371 526 90 3,007

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197

13. Property, plant and equipment (continued)

Land and

buildings

£m

Plant and

machinery

£m

Motor vehicles

£m

Fixtures and

equipment

£m

Total

£m

Cost

At 30 March 2020 4,188 1,257 921 439 6,805

Exchange rate movements (40) (16) (7) (8) (71)

Reclassification (1) 3 2 (3) 1

Modifications 52 1 19 – 72

Additions 202 103 99 33 437

Disposals (149) (66) (43) (38) (296)

Reclassification to non-current assets held for sale (10) (4) – – (14)

At 28 March 2021 4,242 1,278 991 423 6,934

Depreciation and impairment

At 30 March 2020 2,034 897 412 342 3,685

Exchange rate movements (13) (8) (3) (6) (30)

Modifications 5 – – – 5

Charge for the year 218 85 95 34 432

Disposals (22) (65) (39) (37) (163)

Reclassification to non-current assets held for sale – (2) – – (2)

At 28 March 2021 2,222 907 465 333 3,927

Depreciation rates are disclosed within Note 1. No depreciation is provided on land, which represents £279 million

(2020-21: £239 million) of the total cost of property assets.

The net book value of the Group’s property, plant and equipment includes £292 million (2020-21: £115 million) in respect of assets in the

course of construction. The net book value of the Group’s land and buildings includes £290 million (2020-21: £316 million) in respect of

building fit-out.

The £854 million (2020-21: £437 million) additions include £2 million (2020-21: £4 million) borrowing costs capitalised at a rate of 2.65%

(2020-21: 2.5%) in relation to specific qualifying assets.

14. Leases

The Group primarily leases office buildings and letter and parcel processing facilities. At 27 March 2022, the Group held approximately

1,150 land and building leases (2020-21: 1,039). The Group also has leases for some of its vehicle fleet and plant and equipment used in

operations. Leases are negotiated on an individual basis and may include extension or termination options.

The lease liabilities are reported as follows in the balance sheet:

Lease liabilities

At 27 March

2022

At 28 March

2021

Present value of

lease payments

£m

Present value of

lease payments

£m

Current liabilities

Lease liabilities due within one year (213) (197)

Non-current liabilities

Lease liabilities due between one and five years (631) (560)

Lease liabilities due beyond five years (497) (399)

Notes to the Consolidated Financial Statements continued

Financial Statements

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198

14. Leases (continued)

The right of use assets resulting from lease agreements are detailed below:

Right of use assets

Land and

buildings

£m

Plant and

machinery

£m

Motor vehicles

£m

Fixtures and

equipment

£m

Total

£m

At 27 March 2022

Cost 1,489 159 519 7 2,174

of which additions 268 10 31 2 311

Accumulated depreciation (368) (122) (315) (4) (809)

Deprecation charge (146) (15) (52) (1) (214)

Total 1,121 37 204 3 1,365

Right of use assets

Land and

buildings

£m

Plant and

machinery

£m

Motor vehicles

£m

Fixtures and

equipment

£m

Total

£m

At 28 March 2021

Cost 1,193 188 519 5 1,905

of which additions 73 3 31 1 108

Accumulated depreciation (258) (137) (296) (3) (694)

Deprecation charge (136) (22) (52) (2) (212)

Total 935 51 223 2 1,211

Leases in the income statement

Leases are recognised in the income statement as detailed below:

52 weeks

2022

£m

52 weeks

2021

£m

Other operating income

Sublease income 4 5

Material expenses

Expenses from short-term/low-value leases (50) (42)

Depreciation

Depreciation of right of use assets (214) (212)

Net finance costs

Interest expense on lease liabilities (29) (26)

The Group enters into sale and leaseback transactions for plant and machinery and vehicles. Cash received from these transactions in

the year was £nil (2020-21: £1 million).

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Annual Report and Financial Statements 2021-22

199

15. Goodwill

2022

£m

2021

£m

Cost

At 29 March 2021 and 30 March 2020 809 848

Exchange rate movements (8) (35)

Disposal of business – (4)

Acquisition of business 49 –

At 27 March 2022 and 28 March 2021 850 809

Impairment

At 28 March 2021 and 29 March 2020 431 458

Exchange rate movements (9) (23)

Disposal of business – (4)

At 27 March 2022 and 28 March 2021 422 431

Net book value:

At 27 March 2022 and 28 March 2021 428 378

At 28 March 2021 and 29 March 2020 378 390

GLS Europe

The carrying value of goodwill of £428 million (2020-21: £378 million) at the balance sheet date includes £254 million (2020-21: £258 million)

in relation to GLS’ European network (GLS Europe CGU). The carrying value of the GLS European network is £791 million (2020-21: £696 million).

The CGU has been assessed for impairment by comparing the carrying value of the CGU with its recoverable amount, being the CGU’s

value in use. The value in use has been calculated by discounting cash flows for a five-year period, with the period beyond five years

assumed to have a perpetuity growth rate of 0.4% (2020-21: 0.4%). All cash flows of the CGU have been discounted to present value at

the CGU’s post-tax discount rate of 9.0% (2020-21: 9.0%) which reflects current market assessments of the time value of money and

therisks specific to the asset or CGU. The pre-tax discount rate is 12.1% (2020-21: 12.1%). The recoverable amount was deemed to be

significantly in excess of the carrying value of the CGU.

GLS US excluding US Freight

The GLS US businesses represent two separate CGUs, comprising the US West Coast operations (General Logistics Systems US Inc.

(GLS US) – previously known as GSO and Postal Express Inc. (PEX)), and US Freight. In 2018-19, all the goodwill in the GLS US/PEX CGU

was fully impaired, along with other tangible and intangible fixed assets. The GLS US/PEX turnaround plan is progressing, driven by

strong revenue growth.

US Freight

The carrying value of goodwill in relation to US Freight (previously known as Mountain Valley Express) is £1 million (2020-21: £1 million).

An impairment review has been performed comparing the carrying amount of the US Freight CGU of £22 million (2020-21: £19 million),

with its recoverable amount. The recoverable amount has been calculated by discounting cash flows for a five-year period with the

period beyond five years assumed to have a perpetuity growth rate of 0.7% (2020-21: 0.7%). All cash flows of the CGU have been

discounted to present value at the CGU’s post-tax discount rate of 13.0% (2020-21: 13.0%) which reflects current market assessments

of the time value of money and the risks specific to the asset or CGU. The pre-tax discount rate is 18.0% (2020-21: 18.1%). This impairment

assessment identified that the CGU’s recoverable amount exceeds its carrying value by £12 million (2020-21: £12 million). Sensitivity

analysis has been performed on each of the key assumptions, which did not identify any plausible outcomes that would require the

CGUto be impaired.

GLS Dicom Canada

The value of the goodwill in respect of GLS Dicom Canada at 28 March 2021 is £132 million (2020-21: £106 million). The goodwill

balancehas increased predominately as a result of £20 million of goodwill reallocated from the GLS Rosenau Transport Canada CGU.

The carrying value ofthis CGU is £219 million (2020-21: £195 million). To assess the CGU for impairment, the carrying amount has been

compared with its value in use, which has been calculated by discounting cash flows covering a period of five years, with the period beyond

five years assumed to have a perpetuity growth rate of 1.7% (2020-21: 1.8%). All cash flows have been discounted to present value using

apost-tax discount rate of 9.1% (2020-21: 8.6%). The pre-tax discount rate is 12.4% (2020-21: 11.6%). Based on these assumptions, the

value in use was in excess of the carrying value. Sensitivity analysis has been performed on each of the key assumptions, which did not

identify any plausible outcomes that would require the CGUto be impaired.

Notes to the Consolidated Financial Statements continued

Financial Statements

Royal Mail plc

Annual Report and Financial Statements 2021-22

200

15. Goodwill (continued)

GLS Rosenau Transport Canada

During the reporting year, GLS acquired Rosenau Transport, which resulted in the recognition of £46 million of goodwill. As a result

ofsynergies between this CGU and the Dicom CGU £20 million of the goodwill was allocated to Dicom with the balance remaining in

theGLS Rosenau Transport Canada CGU. Further, as a result of foreign exchange movements the goodwill at year end was valued at

£28 million. An impairment review has been performed comparing the carrying amount of the Rosenau Transport CGU, of £205 million,

with its recoverable amount. The recoverable amount has been calculated by discounting cash flows for a five-year period with the

period beyond five years assumed to have a perpetuity growth rate of 1.7%. All cash flows of the CGU have been discounted to present

value at the CGU’s post-tax discount rate of 9.1%, which reflects current market assessments of the time value of money and the risks

specific to the asset or CGU. The pre-tax discount rate is 12.4%. Sensitivity analysis has been performed on each of the key assumptions,

which did not identify any plausible outcomes that would require the CGU to be impaired.

Other Group goodwill

The remaining goodwill of £13 million (2020-21: £13 million) arising from small business acquisitions, each being a separate CGU,

issupportable but not material in the context of the Group’s total goodwill.

16. Intangible assets

2022 2021

Master

franchise

licences

£m

Customer

listings

£m

Software

£m

Brands

£m

Total

£m

Master

franchise

licences

£m

Customer

listings

£m

Software

£m

Brands

£m

Total

£m

Cost

At 29 March 2021

and30 March 2020 23 127 1,117 27 1,294 24 129 1,087 29 1,269

Exchange rate

movements (1) 5 (2) 1 3 (1) (2) (7) (2) (12)

Additions – – 83 – 83 – – 54 – 54

Disposals – – (10) – (10) – – (16) – (16)

Reclassification – – (5) – (5) – – (1) – (1)

Acquisition of

business – 39 – 9 48 – – – – –

At 27 March 2022

and 28 March 2021 22 171 1,183 37 1,413 23 127 1,117 27 1,294

Amortisation

andimpairment

At 29 March 2021

and30 March 2020 23 52 730 21 826 24 41 624 22 711

Exchange rate

movements (1) 1 (1) 1 – (1) (2) (5) (2) (10)

Charge for the year – 13 101 1 115 – 13 127 1 141

Reclassification – – (6) – (6) – – – – –

Disposals – – (10) – (10) – – (16) – (16)

At 27 March 2022

and 28 March 2021 22 66 814 23 925 23 52 730 21 826

Net book value:

At 27 March 2022

and 28 March 2021 – 105 369 14 488 – 75 387 6 468

At 28 March 2021

and29 March 2020 – 75 387 6 468 – 88 463 7 558

The intangible assets detailed above have finite lives and are being written down on a straight-line basis. The net book value of the

Group’s software assets includes £62 million (2020-21: £43 million) in respect of assets in the course of construction. The £83 million

(2020-21: £54 million) additions include £1 million (2020-21: £1 million) of borrowing costs capitalised at a rate of 2.65% (2020-21: 2.5%)

in relation to specific qualifying assets.

The Group holds individually material intangible assets totalling £111 million (2020-21: £133 million). These assets relate to various

ITinitiatives taking place across the business and are tested annually for impairment. They have an average remaining useful life of

fiveyears (2020-21: six years).

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201

17. Investments in associates

Details of the associates of the Group are listed below. To ensure that the reported share of the results of these companies aligns with

the Group’s reporting year ended 27 March 2022 (2020-21: 28 March 2021), information provided by each of the respective companies

isanalysed and an estimate of profit/loss accrued as appropriate.

Principal activities Country of incorporation Reporting date

%

ownership

2022

%

ownership

2021

Associate company

JICMAIL Limited Market research UK 31 March 20.0 20.0

Quadrant Catering Limited Catering services UK 30 September 51.0 51.0

Market Engine Global Pty Limited

Software

development Australia 30 June 34.5 34.5

Charac Limited

Digital pharmacy

prescription services UK 31 March 33.3 –

On 22 April 2021, the funding model for JICMAIL Limited changed and, as a consequence, Royal Mail has only Board representation

andis no longer a capital contributor to the company.

The majority of board membership and voting power to direct relevant activities in Quadrant Catering Limited (‘Quadrant’) is held by

theother investor company and is therefore not considered to be a subsidiary in line with IFRS 10 ‘Consolidated Financial Statements’.

Quadrant ceased trading with effect from 30 September 2020 and is now in the process of being wound up. As part of this process,

on18 June 2021 the Group received a final dividend from Quadrant of £5.1 million.

On 25 April 2022, Market Engine Global Pty Limited was officially deregistered by the Australian Securities and Investments

Commission and it has provided a return of capital to the Groupwhich amounted to less than £30,000.

On 11 February 2022, the Group acquired its share of Charac Limited for £1 million.

Movements in interests in associates

2022

£m

2021

£m

Cost

At 29 March 2021 and 30 March 2020 5 5

Acquisition 1 –

Dividend received (5) –

At 27 March 2022 and 28 March 2021 1 5

There are no significant restrictions on the ability of the associates to transfer funds to the Group in the form of cash dividends or

repayment of loans and advances.

18. Share-based payments

Employee Free Shares

Employee Free Shares are held on behalf of employees in a tax-advantaged Share Incentive Plan (SIP).

The shares are held in a Trust administered by Equiniti Share Plan Trustees Limited (Equiniti) and may only be distributed to, or for the

benefit of, eligible employees. The Trust is funded by the Company and has therefore been consolidated within these Financial Statements.

Partnership and Matching Shares

Beginning in October 2018, a Partnership and Matching Share scheme was introduced for eligible employees. Under the terms of the

scheme employees may elect to purchase a limited number of Royal Mail plc shares through monthly payroll deductions at the current

market price (Partnership Shares). For every five Partnership Shares purchased, the employee receives one unallocated SIP share

(Matching Shares), up to a maximum of two Matching Shares per month, free of charge.

At 27 March 2022, there had been 42 (2020-21: 30) such monthly awards and a total of 1,309,873 (2020-21: 959,671) Matching Shares had

been awarded to eligible staff members at a weighted average market price of 314.4 pence (2020-21: 252.8 pence). The vesting period

for each award is three years from the award date, with all allocated shares to be equity-settled.

A charge to the income statement of £2 million (including a £1 million National Insurance charge) has been made for the year ended

27 March 2022 (2020-21: £2 million charge including a net £1 million National Insurance credit) for all SIP allocations.

Notes to the Consolidated Financial Statements continued

Financial Statements

Royal Mail plc

Annual Report and Financial Statements 2021-22

202

18. Share-based payments

A reconciliation of the ordinary shares held in the SIP at 27 March 2022 and 28 March 2021 is shown below.

Number

of shares

2021-22

Number

of shares

2020-21

Total shares remaining in SIP at 29 March 2021 and 30 March 2020 53,789,835 68,182,273

Shares sold/transferred out of SIP during the reporting year (fully vested) (7,906,372) (10,390,847)

Shares transferred out of SIP during the reporting year (‘good leavers’)

1

(5,465,559) (4,001,591)

Total shares remaining in SIP at 27 March 2022 and 28 March 2021 40,417,904 53,789,835

1 ‘Good leavers’ refers to former employees whose shares vested under specific circumstances, in accordance with the rules of the scheme.

Of the total shares remaining in the scheme, 38,596,514 (2020-21: 51,752,858) have been allocated to current employees. The remaining

1,821,390 (2020-21: 2,036,977) shares are unallocated and have arisen as a result of forfeitures.

Award of shares under the Long Term Incentive Plan

Award year Grant date Shares vest from

Fair value/share (pence)

Monte-Carlo simulation

Maximum

number of

potential shares

to vest

Market-based

conditions

Non-market-

based conditions

2019 08/08/2019 08/08/2022 84.0 210.9 1,212,590

2019 12/12/2019 12/12/2022 100.0 232.2 –

2020 27/11/2020 27/11/2023 272.3 309.3 623,510

2021 12/08/2021 12/08/2024 305.6 500.7 666,566

A charge to the income statement of £2 million (including £nil for National Insurance) has been made for the year ended 28 March 2022

in relation to all LTIP schemes (2020-21: £2 million, including £1 million for National Insurance).

The one employee accruing awards under the December LTIP 2019 scheme, forfeited their shares during the year.

Award of shares under the Deferred Share Bonus Plan

Award year Grant date Shares vest from

Fair value/share

(pence)

Maximum

number of

potential shares

to vest

2019 18/07/2019 18/07/2022 218.7 86,875

2020 24/07/2020 24/07/2022 180.0 486,471

2020 24/07/2020 24/07/2023 180.0 486,471

2021 01/12/2021 01/12/2023 502.4 42,596

A charge to the income statement of £2 million (including £1 million for National Insurance) has been recognised for the year ended

27 March 2022 in relation to all DSBP schemes (2020-21: £3 million, including £nil for National Insurance).

19. Non-current assets held for sale

The balance sheet values of the assets held for sale during the reporting year are shown below.

At

27 March

2022

£m

At

28 March

2021

£m

Property assets held for sale – 26

Total – 26

Property assets held for sale

During the year, £26 million costs relating to the Nine Elms site were classified as ‘held for sale’. Subsequently, all costs relating to the

Nine Elms site were transferred to the income statement, within ‘profit on disposal of property, plant and equipment’, leaving a £nil

balance at 27 March 2022 (2020-21: £26 million).

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203

20. Trade and other receivables

Current trade and other receivables

At

27 March

2022

£m

At

28 March

2021

£m

Trade receivables 1,507 1,513

Accrued income 46 43

Prepayments 106 84

Total 1,659 1,640

Movements in the loss allowance for bad and doubtful debts are shown below.

2022

£m

2021

£m

At 29 March 2021 and 30 March 2020 (79) (69)

Receivables provided for during the year (12) (42)

Release of allowance 34 18

Utilisation of allowance 9 13

Reclassification (2) –

Exchange differences (1) 1

At 27 March 2022 and 28 March 2021 (51) (79)

The Group’s approach to loss allowance for bad and doubtful debts is explained in the accounting policies in Note 1.

The age profile of the trade receivables balance is shown below.

At

27 March

2022

£m

At

28 March

2021

£m

Not yet overdue 1,350 1,310

Past due not more than one month 112 161

Past due more than one month and not more than two months 18 22

Past due more than two months 27 20

Total 1,507 1,513

Non-current other receivables

At

27 March

2022

£m

At

28 March

2021

£m

Other receivables 94 100

Total 94 100

Other receivables mainly relates to deferred proceeds in respect of the disposal of part of the Mount Pleasant site to Taylor Wimpey UK Ltd.

Notes to the Consolidated Financial Statements continued

Financial Statements

Royal Mail plc

Annual Report and Financial Statements 2021-22

204

21. Cash and cash equivalents

At

27 March

2022

£m

At

28 March

2021

£m

Cash at bank and in hand 276 265

Client cash 36 41

Cash equivalent investments: Short-term bank and money market fund investments 825 1,267

Total 1,137 1,573

Cash and cash equivalents comprise amounts held physically in cash, bank balances available on demand and deposits for three

months or less, dependent on the immediate cash requirements of the Group. Where interest is earned, this is either at floating or

short-term fixed rates based upon bank deposit rates.

Client cash is cash collected from consignees by GLS on behalf of its posting customers. It is maintained in separate bank accounts

tothe cash of the business and allocated to a separate payables account in the balance sheet so it can be tracked and reconciled.

22. Current trade and other payables

At

27 March

2022

£m

At

28 March

2021

£m

Trade payables and accruals (1,870) (1,829)

Advance customer payments (mainly for stamps held, not yet used by customers) (254) (299)

Social security (121) (142)

Client creditors (36) (57)

Capital expenditure payables (41) (40)

Other (10) (10)

Total (2,332) (2,377)

The fair value of trade and other payables is not materially different from the carrying value. The average credit period taken for trade

purchases is 38 days (2020-21: 40 days).

The Group operates a supply chain finance arrangement for small and medium suppliers. This form of reverse financing allows

suppliers to obtain early access to funding. Suppliers may choose to access payment as soon as their invoices are processed, rather

than adhere to Royal Mail standard payment terms, by paying a financing fee to the scheme provider. The Group pays the provider of the

scheme on the due date of the invoices, therefore this scheme does not assist the Group in the management of working capital.

As the scheme has not led to a substantial modification in the terms of the financial liability, the Group continues to treat the amounts

owed within trade payables. All cash flows associated with the programme are included within operating cash flows as they continue

tobe part of the normal operating cycle of the Group. There is no impact on net debt, as amounts owed continue to be reported within

trade payables.

The balance owed on the facility at 27 March 2022 was £66 million (28 March 2021: £36 million).

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205

23. Loans and borrowings

At 27 March 2022

Loans and

borrowings

£m

Further

committed

facility

£m

Total facility

£m

Average interest

rate of loan

drawn down

%

Basis of interest

rate chargeable

Average

maturity date of

loan drawn

down

Year

Average

maturity date of

loan facility

Year

Bank syndicate loan facility – 925 925 n/a

SONIA+CAS

+0.475%

1

n/a 2026

€500 million bond – 2.375%

Senior Fixed Rate Notes 416 – 416 2.5

Fixed at

2.5% 2024 2024

€550 million bond – 1.25%

Senior Fixed Rate Notes 456 – 456 2.7

Fixed at

2.7% 2026 2026

Total 872 925 1,797 2.6 2025 2026

At 28 March 2021

Loans and

borrowings

£m

Further

committed

facility

£m

Total facility

£m

Average interest

rate of loan

drawn down

%

Basis of interest

rate chargeable

Average maturity

date of loan

drawn down

Year

Average maturity

date of loan

facility

Year

Bank syndicate loan facility – 925 925 n/a

LIBOR plus

0.475% n/a 2025

€500 million bond – 2.375%

Senior Fixed Rate Notes 427 – 427 2.5 Fixed at 2.5% 2024 2024

€550 million bond – 1.25%

Senior Fixed Rate Notes 468 – 468 2.7

Fixed at

2.7% 2026 2026

Total 895 925 1,820 2.6 2025 2025

1 The total margin over Sterling OverNight Indexed Average (SONIA) consists of a 0.40% margin, a credit adjustment spread (CAS) and a utilisation fee of 0.075% (for

drawings less than one third of the total facility). Interest is compounded daily and a CAS of between 0.0% and 0.3% is added using the International Swaps and Derivatives

Association (ISDA) published five-year historical mean on fixing date (5 March 2021).

The €500 million bond, issued in July 2014, is shown net of issue discount and fees and at a closing spot rate of £1/€1.201 (2020-21: £1/€1.170).

The effective interest rate on the bond of 2.5% (2020-21: 2.5%) consists of the interest coupon of 2.375% (2020-21: 2.375%) plus the unwinding

of the discount and fees on issuing the bond of 0.08% (2020-21: 0.08%). The bond is designated as a hedge of the net investment in GLS, which

has the Euro as its functional currency. During the year, a gain of £11 million (2020-21: £19 million gain) on the retranslation of this borrowing

was transferred to other comprehensive income, which offsets the losses on translation of the net investment in GLS. There was no hedge

ineffectiveness in the current or comparative reporting years.

On 8 October 2019, Royal Mail plc issued a €550 million bond with coupon of 1.25% and maturity date of 8 October 2026. To hedge the

foreign exchange risk, Royal Mail chose to take out a cross-currency swap. The combined interest rate of the coupon and the cross-

currency swap is 2.7% (2020-21: 2.7%). The €550 million bond is shown net of issue discount and fees and at a closing spot rate of

£1/€1.201 (2020-21: £1/€1.170). The effective interest rate on the bond plus the cross-currency swap (2.7%) consists of the interest

coupon of 1.25% plus the effects of the cross-currency swap (1.00%) and the unwinding of the discount and fees on issuing the bond

(0.40%). The revaluation of the bond is hedged by the cross-currency swap. During the year, a gain of £12 million (2020-21: £21 million

gain) on the retranslation of this borrowing was transferred to other comprehensive income, which is offset by the losses on the

cross-currency swap. There was no hedge ineffectiveness in the current or comparative reporting years.

In October 2021, the bank syndicate loan facility was extended by one year to September 2026. There are no further extension options

intheagreement. In August 2021, the interest reference rate was amended from LIBOR to SONIA (for any drawings in US Dollars).

Interest is compounded daily and a CAS of between 0.0% and 0.3% is added using the ISDA¹ published five-year historical mean on

fixing date (5 March 2021). The bank syndicate loan facility can be cancelled and any loans drawn under the facility can become

repayable immediately on the occurrence of an event of default under the loan agreements.

Notes to the Consolidated Financial Statements continued

Financial Statements

Royal Mail plc

Annual Report and Financial Statements 2021-22

206

23. Loans and borrowings (continued)

Such events of default include non-payment, insolvency and breach of covenants. On 22 June 2020, a covenant amendment was agreed

that waived the financial covenants relating to interest (excluding arrangement fees), adjusted net debt and EBITDA, until March 2022,

replacing them with a quarterly minimum liquidity covenant. From March 2022, the facility reverted to the previous covenants. It is not

anticipated that the Group is at risk of breaching any of these amended obligations.

The financial covenants, which apply again from March 2022 onwards, require the Group to maintain the (leverage) ratio of adjusted

netdebt to EBITDA below 3.5:1 and EBITDA to interest above 3.5:1. The covenant ratios are calculated on an IAS 17 basis for leases.

Adjusted net debt consists of net debt less leases capitalised under IFRS 16, plus Letters of Credit (contingent liabilities in respect of the

Royal Mail insurance programme, where the possibility of an outflow of economic benefits is considered remote), plus bank guarantees

provided to HMRC (in order to facilitate the movement of parcels from Europe efficiently through to our network, where the possibility

of an outflow of economic benefits is considered remote) and is adjusted for exchange rate movements during the year. EBITDA is

adjusted to deduct operating lease expense on leases capitalised under IFRS 16 and to remove transformation costs and certain

specific items (the pension charge to cash difference is not removed). Interest is adjusted to remove interest on leases capitalised

under IFRS 16. The Group’s leverage ratio at 27 March 2022 is -0.2:1 (2020-21: -0.4:1). The Group’s ratio of EBITDA tointerest at 27 March

2022 is 46.3:1 (2020-21: 84.6:1). The minimum liquidity covenant, which fell away in March 2022, required theGroup to maintain at least

£250 million of liquidity defined as cash, cash equivalents, current asset investments and undrawn, committed facilities. The Group’s

liquidity at 27 March 2022 is £2,153 million (2020-21: £2,519 million). Accordingly, the Group comfortably meets the covenants tests

within its bank syndicate loan facility agreement.

The interest rate chargeable on the bank syndicate loan facility would increase if more than one third of the facility was drawn and also

if the Group’s leverage ratio exceeded 1:1. Under the loan agreement, the maximum interest rate chargeable would be compounding

SONIA plus 2.35%. The €500 million bond and the €550 million bond become repayable immediately on the occurrence of an event of

default under the bond agreements. These events of default include non-payment and insolvency. It is not anticipated that the Group

isat risk of breaching any of these obligations.

The undrawn committed facilities, in respect of which all conditions precedent had been met at the balance sheet date, were

£925 million maturing in September 2026 (2020-21: £925 million maturing in September 2025).

There is no security in place under the bank syndicate loan facility or the bonds.

The bank syndicate loan facility contains provision on a change of control of the Group for negotiation of the continuation of the agreement

or cancellation by a lender. The €500 million bond and the €550 million bond both contain provisions such that, on a change of control

that is combined with a credit rating downgrade in certain circumstances, the noteholders may require the Group to redeem or, at the

Group’s option, purchase the notes for their principal amount, together with interest accrued to (but excluding) the date of redemption

or repurchase.

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

207

24. Financial assets and liabilities and risk management

The following disclosures are included in this Note:

a) Classification, carrying amount and fair value of financial assets and liabilities – Carrying amounts and fair value of each category

of financial assets and liabilities.

b) Movement in liabilities arising from financing activities – A reconciliation of the opening and closing balances of liabilities arising

from financing activities.

c) Foreign currency risk management – How Management addresses the risk that the fair value or future cash flows of a financial

instrument will fluctuate because of changes in foreign exchange rates.

d) Commodity price risk management – How Management addresses the risk that the fair value or future cash flows of a financial

instrument will fluctuate because of changes in market prices.

e) Interest rate risk management – How Management addresses the risk that the fair value or future cash flows of a financial

instrument will fluctuate because of changes in market interest rates.

f) Liquidity risk management – How Management addresses the risk that an entity will encounter difficulty in meeting obligations

associated with financial liabilities that are settled by delivering cash or another financial asset.

g) Credit risk management – How Management addresses the risk that one party to a financial instrument will cause a financial loss

for the other party by failing to discharge an obligation.

h) Sensitivity analysis – How the income statement and balance sheet would have been affected by changes in commodity prices

andexchange rates in the reporting year.

a) Classification, carrying amount and fair value of financial assets and liabilities

The following table shows the classification, carrying amount and fair value of the Group’s financial assets:

Level Classification

At

27 March

2022

Carrying amount

£m

At

27 March

2022

Fair value

£m

At

28 March

2021

Carrying amount

£m

At

28 March

2021

Fair value

£m

Financial assets

Cash 1 312 312 306 306

Cash equivalent investments 1 825 825 1,267 1,267

Money market funds FVTPL 725 725 1,207 1,207

Short-term deposits – bank

Amortised

cost 100 100 60 60

Cash and cash equivalents 1 1,137 1,137 1,573 1,573

Current asset investments –

short-term deposits – bank 1

Amortised

cost 70 70 – –

Pension escrow investments 1 FVTPL 213 213 212 212

Trade and other receivables

1

2

Amortised

cost 1,553 1,553 1,556 1,556

Derivative assets (current) 2 FVTPL 74 74 2 2

Derivative assets (non-current) 2 FVTPL 30 30 5 5

Total financial assets 3,077 3,077 3,348 3,348

1 The comparative year 2020-21 has been re-presented to exclude prepayments of £84 million (see Note 20).

Notes to the Consolidated Financial Statements continued

Financial Statements

Royal Mail plc

Annual Report and Financial Statements 2021-22

208

24. Financial assets and liabilities and risk management (continued)

The following table shows the classification, carrying amount and fair value of the Group’s financial liabilities:

Level Classification

At

27 March

2022

Carrying

Amount

£m

At

27 March

2022

Fair

Value

£m

At

28 March

2021

Carrying

Amount

£m

At

28 March

2021

Fair

Value

£m

Financial liabilities

Obligations under leases (current) 2

Amortised

cost (213) (213) (197) (197)

€500 million bond 2

Amortised

cost (416) (429) (427) (460)

€550 million bond 2

Amortised

cost (456) (453) (468) (495)

Obligations under leases (non-current) 2

Amortised

cost (1,128) (1,110) (959) (993)

Trade and other payables

2

2

Amortised

cost (2,078) (2,078) (2,078) (2,078)

Derivative liabilities (current) 2 FVTPL (8) (8) (12) (12)

Derivative liabilities (non-current) 2 FVTPL (36) (36) (36) (36)

Total financial liabilities (4,335) (4,327) (4,177) (4,271)

Net total financial liabilities (1,258) (1,250) (829) (923)

2 The comparative year 2020-21 has been re-presented to exclude £299 million advance customer payments (deferred revenue) (see Note 22).

Derivatives that do not qualify for hedge accounting are classified as fair value through profit and loss and any gains or losses

arisingfrom changes in fair value are taken directly to the income statement in the year. The ‘Level’ classification in the above

tableisexplained inthe ‘Fair value measurement of financial instruments’ section of Note 1.

The main purpose of these financial instruments is to raise finance and manage the liquidity needs of the business’ operations.

The Group has various other financial instruments such as trade receivables and trade payables which arise directly from operations

and are not considered further in this Note.

No speculative trading in financial instruments has been undertaken during the current or comparative reporting years, in line with

Group policy.

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

209

24. Financial assets and liabilities and risk management (continued)

b) Movement in liabilities arising from financing activities

The following table reconciles the opening and closing balances of liabilities arising from financing activities:

Interest-bearing

loans and

borrowings

(non-current)

£m

Obligations

under leases

(current)

£m

Obligations

under leases

(non-current)

£m

Total

£m

At 29 March 2021 (895) (197) (959) (2,051)

Movements through income statement:

Interest payable on financial liabilities (19) – (29) (48)

Movements through cash flow:

Finance costs paid

3

19 – 29 48

Payment of capital element of lease contracts – 192 – 192

Other movements:

Reclassification between categories – (208) 208 –

Increase in lease obligations (non-cash) – – (380) (380)

Effect of foreign currency exchange rates 23 – 3 26

At 28 March 2022 (872) (213) (1,128) (2,213)

3 Finance costs paid of £56 million in the Statement of Cash Flows also includes £7 million interest on cross-currency swaps and £1 million other finance costs.

Interest-bearing

loans and

borrowings

(current)

£m

Interest-bearing

loans and

borrowings

(non-current)

£m

Obligations under

finance leases

(current)

£m

Obligations under

finance leases

(non-current)

£m

Total

£m

At 30 March 2020 (700) (935) (201) (987) (2,823)

Movements through income statement:

Interest payable on financial liabilities (3) (20) – (26) (49)

Movements through cash flow:

Finance costs paid

4

3 20 – 26 49

Repayment of loans and borrowings 700 – – – 700

Payment of capital element of lease contracts – – 188 – 188

Cash received on sale and leasebacks – – – (1) (1)

Other movements:

Reclassification between categories – – (184) 184 –

Increase in lease obligations (non-cash) – – – (173) (173)

Effect of foreign currency exchange rates – 40 – 18 58

At 29 March 2021 – (895) (197) (959) (2,051)

4 Finance costs paid of £57 million in the Statement of Cash Flows also includes £7 million interest on cross-currency swaps and £1 million other finance costs.

c) Foreign currency risk management

Foreign currency transaction risk

Royal Mail is exposed to foreign currency risk due to interest payments on the €500 million and €550 million bonds, certain obligations

under Euro-denominated leases, trading with overseas postal administrations and various purchase contracts denominated in foreign

currency. GLS’ functional currency is the Euro. It also has some exposure to non-Euro currencies, principally in emerging European

markets, to the US Dollar and the Canadian Dollar.

Where possible, exposures are netted internally. Any remaining exposure is hedged using a combination of external spot and forward

purchase and sale contracts. Hedging will not normally be considered for exposures of less than £1 million. Hedging is normally

confined to 80% of the forecast exposure, where forecast cash flows are highly probable.

Notes to the Consolidated Financial Statements continued

Financial Statements

Royal Mail plc

Annual Report and Financial Statements 2021-22

210

24. Financial assets and liabilities and risk management (continued)

The following table shows, for each hedge programme, the risk and the percentage hedged of the next 12 months’ exposure:

Hedge programme Risk

Percentage of next 12 months’

exposure that has been hedged

At

27 March

2022

At

28 March

2021

Capital programmes €/£ exchange rate movements 100% 100%

Overseas postal administrations SDR/£ exchange rate movements 38% 42%

Included within derivative liabilities as at 27 March 2022, are capex hedges which have been designated as hedged instruments for

84 million Euro (2020-21: 92 million Euro) with a net derivative liability value of £6 million (2020-21: £5million). The movement in the

fairvalue of these hedge programmes of £2 million loss (2020-21: £5 million loss) has been recognised in other comprehensive income.

There has been no hedge ineffectiveness in these hedge programmes in either year.

Royal Mail’s obligation to settle with overseas postal administrations is denominated in Special Drawing Rights (SDR) – a basket of

currencies which comprise US Dollar, Japanese Yen, Chinese Renminbi, Sterling and Euro. The next 12 months’ exposure is calculated

as the combination of the cost of settling liabilities during the next 12 months and the cost of revaluing unsettled liabilities at the end of

12 months.

Foreign currency translational risk

The Group’s functional currency is Sterling (£). GLS Euro profits are converted at the average exchange rate for the year which can

result in reported growth or decline that does not relate to underlying performance. GLS’ balance sheet is converted at year-end

exchange rates and movements related to foreign currency translation are taken to equity.

The €500 million bond issued in July 2014 acts as a hedge of part of the translation exposure created by the net assets of GLS.

At 27 March 2022, Royal Mail had €19 million of Euro-denominated lease payables outstanding (2020-21: €38 million). This similarly

acts as a hedge of the net assets of GLS. The remaining net assets of GLS in excess of the €500 million bond and lease payables

arenothedged. Foreign currency exchange differences arising from the translation of the net assets of GLS, the €500 million bond

andthe Royal Mail Euro-denominated lease payables, at closing Sterling/Euro exchange rates, are recognised in the statement of

comprehensive income. These exchange differences would be released to the income statement as part of the gain or loss if GLS was

sold. During the year, foreign currency exchange gains on the bond of £11 million (2020-21: £19 million gain) and foreign exchange gains

on the lease payables of £1 million (2020-21: £2 million gain) were recognised in the statement of comprehensive income. There was no

hedge ineffectiveness in the current or prior reporting years.

The €550 million bond issued in October 2019 is perfectly hedged for foreign currency risk by a cross-currency swap. Included within

derivative liabilities as at 27 March 2022 is the cross-currency swap which has been designated as a hedged instrument and which had

a net derivative liability value of £38 million (2020-21: £35 million). The movement in the fair value of this hedge instrument of £2 million

gain (2020-21: £4 million loss) has been recognised in other comprehensive income. There has been no hedge ineffectiveness in this

hedge programme in either year.

The net total financial assets and liabilities are held in various different currencies as summarised in the table below. The majority

ofthe non-Sterling financial assets and liabilities (other than the €500 million and €550 million bonds and £392 million of leases) are

held within cash or derivatives.

Sterling

£m

US$

£m

Euro

£m

Other

£m

Total

£m

Net total financial liabilities at 27 March 2022 (94) (24) (1,126) (14) (1,258)

Net total financial assets/(liabilities) at 28 March 2021 345 (21) (1,122) (31) (829)

d) Commodity price risk management

Royal Mail is exposed to fuel price risk arising from operating one of the largest vehicle fleets in Europe – which consumes over

150 million litres of fuel per year – and a jet fuel price risk arising from purchasing air freight services. The Group’s fuel risk

management strategy aims to reduce uncertainty created by the movements in the oil and foreign currency markets. The strategy

usesforward commodity price swaps to mitigate this risk by entering into a combination of US Dollar and forward currency purchase

or Sterling contracts to manage these exposures as it sees fit.

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

211

24. Financial assets and liabilities and risk management (continued)

In addition, the Group is exposed to the commodity price risk via its requirement to purchasing electricity and gas. The Group’s risk

management strategy aims to reduce uncertainty created by the movements in the electricity and gas markets. These exposures are

managed by locking into fixed price contracts with suppliers and using forward commodity price swaps in Sterling.

Included within derivative assets as at 27 March 2022 are diesel and jet contracts and gas contracts which have been designated as

hedge instruments. The diesel and jet hedges are for 324 million litres of fuel (2020-21: 321 million litres) with a net derivative asset

value of £72 million (2020-21: £2 million net liabilities). The gas hedges are for 24 million therms of gas (2020-21: 22 million therms)

with a net derivative asset value of £32 million (2020-21: £1 million). The movement in the fair value of these three hedged programmes

of £119 million gain (2020-21: £16 million gain) has been recognised in other comprehensive income and hedge ineffectiveness of

£4 million gain (2020-21: £nil) has been recognised within other operating costs.

As the GLS business relies generally on the use of subcontractors, who are responsible for purchasing their own fuel, GLS has no

direct exposure to diesel costs. The only other significant commodity exposure within GLS relates to electricity and gas, which is

fragmented across itsEuropean bases. In view of the other highly hedged positions, the Group takes the view that the unhedged

exposure arising from thecommodities in GLS does not add significant risk to the Group.

e) Interest rate risk management

The Group’s policy is to manage its net interest expense using an appropriate mix of fixed and floating rate financial instruments, combined

with external hedging of interest rate risk, as appropriate, to keep a high percentage of its gross debt fixed. At 27 March 2022, there was

noexternal hedge of interest rate risk (2020-21: none). Interest on financial instruments classified as floating rate is re-priced at intervals

of less than one year. Interest on financial instruments classified as fixed rate is fixed until the maturity of the instrument.

The analysis below sets out the carrying amount of the Group’s financial instruments that are exposed to interest rate risk.

At 27 March 2022

Average

effective

interest rate

%

Within

one year

£m

One to

two years

£m

Two to

five years

£m

More than

five years

£m

Total

£m

Fixed rate

Cash equivalent investments – bank deposits 0.6 30 – – – 30

Current asset investment –

short-term deposits – bank 0.4 70 – – – 70

Financial liabilities

€500 million bond 2.5 – – (416) – (416)

€550 million bond 2.7 – – (456) – (456)

Lease obligations 2.3 (213) (191) (440) (497) (1,341)

Total (113) (191) (1,312) (497) (2,113)

Floating rate

Cash at bank 0.0 151 – – – 151

Cash equivalent investments –

moneymarket funds 0.3 725 – – – 725

Cash equivalent investments – bank deposits 0.8 70 – – – 70

Financial assets – pension escrow

investments (non-current) 0.9 – 21 – 192 213

Total 946 21 – 192 1,159

Non-interest bearing

Cash at bank or in hand 161 – – – 161

Trade and other receivables 1,553 – – – 1,553

Trade and other payables (2,078) – – – (2,078)

Derivative assets 74 27 3 – 104

Derivative liabilities (8) (5) (31) – (44)

Total (298) 22 (28) – (304)

Total financial assets 2,834 48 3 192 3,077

Total financial liabilities (2,299) (196) (1,343) (497) (4,335)

Net total financial assets/(liabilities) 535 (148) (1,340) (305) (1,258)

Notes to the Consolidated Financial Statements continued

Financial Statements

Royal Mail plc

Annual Report and Financial Statements 2021-22

212

24. Financial assets and liabilities and risk management (continued)

At 28 March 2021

Average effective

interest rate

%

Within

one year

£m

One to

two years

£m

Two to

five years

£m

More than

five years

£m

Total

£m

Fixed rate

Financial liabilities

€500 million bond 2.5 – – (427) – (427)

€550 million bond 2.7 – – – (468) (468)

Lease obligations 2.2 (197) (180) (380) (399) (1,156)

Total (197) (180) (807) (867) (2,051)

Floating rate

Cash at bank – 63 – – – 63

Cash equivalent investments – money

market funds 0.1 1,207 – – – 1,207

Cash equivalent investments – bank

deposits 0.2 60 – – – 60

Financial assets – pension escrow

investments (non-current) 1.1 – – 21 191 212

Total 1,330 – 21 191 1,542

Non-interest bearing

Cash at bank or in hand 243 – – – 243

Trade and other receivables

1

1,556 – – – 1,556

Trade and other payables

2

(2,078) – – – (2,078)

Derivative assets 2 4 1 – 7

Derivative liabilities (12) (7) (11) (18) (48)

Total (289) (3) (10) (18) (320)

Total financial assets 3,131 4 22 191 3,348

Total financial liabilities (2,287) (187) (818) (885) (4,177)

Net total financial assets/(liabilities) 844 (183) (796) (694) (829)

1 The comparative year 2020-21 has been re-presented to exclude prepayments of £84 million (see Note 20).

2 The comparative year 2020-21 has been re-presented to exclude £299 million advance customer payments (deferred revenue) (see Note 22).

Drawings under the bank syndicate loan facility are at fixed rate to maturity (which must be six months or less). At 27 March 2022, there

were no drawings (2021-22: nil). The total interest-bearing financial assets of the Group (excluding the RMPP and RMSEPP pension

escrow investments) of £1,046 million (2020-21: £1,330 million), which consist of the fixed and floating rate cash and cash equivalent

investments, plus current financial asset investments, are at short-dated fixed or variable interest rates with an average maturity of

eight days (2020-21: an average maturity of one day). These short-dated financial instruments are maturity-managed to obtain the best

value out of the interest yield curve.

Obligations under leases are either unsecured or secured on the leased assets. The average interest rate is 2.3% (2020-21: 2.2%).

The average maturity date is more than five years (2020-21: more than five years).

Net debt excludes £192 million (2020-21: £191 million) in respect of the RMPP element of the total £213 million (2020-21: £212 million)

pension escrow investments on the balance sheet, which is not considered to fall within the definition of net debt.

The RMPP pension escrow investment of £192 million (2020-21: £191 million) represents a money market fund investment, established with

the agreement of the Pension Trustee for the benefit of members. The RMPP escrow agreement specifies that the funds must be used

forthe benefit of members, on a basis to be agreed between the Plan Trustee and the Company. The funds are therefore not available

toManagement for corporate purposes (outside of pension arrangements) and so the RMPP escrow is excluded from net debt.

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

213

24. Financial assets and liabilities and risk management (continued)

The RMSEPP pension escrow investment of £21 million (2020-21: £21 million) was established to provide security to the RMSEPP. It is

expected that the investment will be available to Royal Mail within the next two years and it is therefore disclosed as maturing in one to

two years. The escrow investment comprises a money market investment. The RMSEPP escrow agreement specifies that the funds will

be returned to the Group once they are no longer required for security purposes and therefore the RMSEPP escrow is included within

net debt.

f) Liquidity risk management

The Group’s primary objective is to ensure that it has sufficient funds available to meet its financial obligations as they fall due. This

isachieved by aligning short-term investments and borrowing facilities with forecast cash flows. Borrowing facilities are regularly

reviewed to ensure continuity of funding. In October 2021, the bank syndicate loan facility was extended by one year to September 2026.

There are no further extension options in the agreement. The unused committed facilities of the Group of £925 million expire in 2026

(2020-21: £925 million expiring in 2025).

Below is a summary of the gross (undiscounted) contractual cash flows of the Group’s financial liabilities. The cash flows for the

€500 million and €550 million bonds and non-Sterling-denominated leases, represent the undiscounted total amounts payable

(interestand nominal repayment) which have been converted to Sterling at 27 March 2022 market forward exchange rates.

For derivatives that are settled gross (including the cross-currency swap), these cash flows represent the undiscounted gross

paymentdue and do not reflect the accompanying cash inflow. For derivatives that are settled net, these cash flows represent

theundiscounted forecast cash outflow.

At 27 March 2022

Gross loans and

borrowings

commitments

£m

Gross lease

instalments

£m

Gross trade and

other payables

£m

Sub-total

£m

Gross payments

on derivatives

settled gross

£m

Gross payments

on derivatives

settled net

£m

Total

£m

Amounts falling due in:

One year or less or on

demand (current) 16 222 2,078 2,316 133 – 2,449

More than one year

(non-current) 964 1,407 – 2,371 558 – 2,929

More than one year but

notmore than two years 16 200 – 216 28 – 244

More than two years but

notmore than five years 948 477 – 1,425 530 – 1,955

More than five years – 730 – 730 – – 730

Total 980 1,629 2,078 4,687 691 – 5,378

Less interest (61) (288) – (349) n/a n/a n/a

Less exchange rate

adjustment (47) – – (47) n/a n/a n/a

Net total 872 1,341 2,078 4,291 n/a n/a n/a

Notes to the Consolidated Financial Statements continued

Financial Statements

Royal Mail plc

Annual Report and Financial Statements 2021-22

214

24. Financial assets and liabilities and risk management (continued)

At 28 March 2021

Gross loans and

borrowings

commitments

£m

Gross lease

instalments

£m

Gross trade and

other payables

2

£m

Sub-total

£m

Gross payments

on derivatives

settled gross

£m

Gross payments

on derivatives

settled net

£m

Total

£m

Amounts falling due in:

One year or less or on

demand (current) 16 203 2,078 2,297 137 7 2,441

More than one year

(non-current) 999 1,204 – 2,203 615 1 2,819

More than one year but

notmore than two years 16 186 – 202 58 1 261

More than two years but

notmore than five years 480 414 – 894 53 – 947

More than five years 503 604 – 1,107 504 – 1,611

Total 1,015 1,407 2,078 4,500 752 8 5,260

Less interest (77) (251) – (328) n/a n/a n/a

Less exchange rate

adjustment (43) – – (43) n/a n/a n/a

Net total 895 1,156 2,078 4,129 n/a n/a n/a

2 The comparative year 2020-21 has been re-presented to exclude £299 million advance customer payments (deferred revenue) (see Note 22).

g) Credit risk management

The level of credit granted to customers is based on a customer’s risk profile, assessed by an independent credit referencing agent.

The credit policy is applied rigidly within the regulated products area to ensure that Royal Mail is not in breach of compliance legislation.

Assessment of credit for non-regulated products is based on commercial factors, commensurate with the Group’s appetite for risk.

An analysis of aged debt is included within Note 20.

The Group’s exposure to credit risk from other financial assets arises from default of the counterparty, with a maximum exposure

equal to the carrying amount of these instruments. At 27 March 2022, 77% (2020-21: 96%) of financial assets were held with AA or

above rated counterparties.

GLS operates a decentralised credit management model, with each country responsible for managing the credit risk associated

withitscustomers. Where appropriate, external credit checks are performed for new and existing customers, taking into account

thecustomer profile, expected volume of business and consequent risk to the respective GLS companies.

Other than trade and other receivables, which are disclosed within Note 20, none of the financial assets is either past due or considered

to be impaired.

h) Sensitivity analysis

As a result of the mix of fixed and variable rate financial instruments and the currency and commodity hedge programmes in place,

theGroup has no material exposure to 2021-22 profit from interest rate risk or commodity price risk (2020-21: £nil risk). Further details

of the Group’s exposure to commodity price risk can be found in the Financial Review.

The Group has an exposure to the exchange rate risk on translating GLS profits; on trading with overseas postal administrations; on

various purchase contracts; and on the interest on the €500 million bond and Royal Mail Euro-denominated leases. The impact of a

10%strengthening of Sterling across all currencies on forecast profits/trade during 2021-22 would be to reduce the Group operating

profit by £24 million (2020-21: £20 million). However, changes in exchange rates could also cause other impacts on operating profit,

including a change in import/export volumes.

The Group has an exposure to the exchange rate risk on translating GLS net assets into Sterling on consolidation. This is partially

offsetby an exposure on translating the €500 million bond and Euro-denominated leases into Sterling at each balance sheet date.

The impact of a 10% strengthening of Sterling against all currencies at 27 March 2022 would have been to reduce the Group net

assetsby £55 million (2020-21: £45 million).

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

215

25. Provisions

Charged as specific items Charged in operating costs

Total

£m

Industrial

diseases

£m

Regulatory fine

£m

Other

£m

Voluntary

redundancy

£m

Property

decommissioning

£m

Litigation

claims

£m

Other

£m

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 adviser, based on current experience of claims, and an assessment of potential future claims, the

majority of which are expected to be received over the next 25 to 30 years. The Group has a rigorous process for ensuring that only

valid claims are accepted.

The Institute and Faculty of Actuaries (UK Asbestos Working Party), on whose modelling actuaries rely for their calculations for

asbestos-related ill-health claims, 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 adviser in considering this guidance and, as

aresult, released £11 million of the provision balance, recognised as an operating specific item in the income statement (see Note 6).

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 £70 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.

Notes to the Consolidated Financial Statements continued

Financial Statements

Royal Mail plc

Annual Report and Financial Statements 2021-22

216

25. Provisions (continued)

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

Within one

year

£m

One to two

years

£m

Two to five

years

£m

After five

years

£m

Total

£m

Within one

year

£m

One to two

years

£m

Two to five

years

£m

After five

years

£m

Total

£m

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)

26. Share capital and reserves

Authorised and issued

At 27 March

2022

£m

At 28 March

2021

£m

956,193,475 (2020-21: 1,000,000,000) ordinary shares of £0.01 each 10 10

Total 10 10

Of the issued ordinary shares, a total of 2,265,008 (2020-21: 572,816) are held by an Employee Benefit Trust (EBT) administered by

Sanne Fiduciary Services Limited. These shares are treated as treasury shares for accounting purposes in accordance with IAS 32

‘Financial Instruments: Presentation’. The Company, however, does not hold any shares in treasury. The EBT is funded by the Company

and has been consolidated within these Financial Statements.

On 18 November 2021, the Company announced a share buyback programme. As a result, 43,806,525 ordinary shares were purchased

by the Company during the year at an average purchase price of 458.3 pence per share for a total consideration of £200.8 million. All of

the purchased shares were subsequently cancelled.

A capital redemption reserve of £438,065 (43,806,525 ordinary shares of £0.01 each) was recognised during the year.

Reserves included in the consolidated statement of changes in equity

Foreign currency translation reserve

The foreign currency translation reserve is used to record the gains and losses arising on translation of assets and liabilities of

subsidiaries denominated in currencies other than the reporting currency.

Hedging reserve

The hedging reserve is used to record gains and losses arising from cash flow hedges.

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

217

27. Commitments

Capital commitments

The Group has commitments of £123 million (2020-21: £116 million) for property, plant and equipment, £59 million (2020-21: £nil) for

vehicles and £6 million (2020-21: £1 million) for intangible assets, which are contracted for but not provided for in the Financial Statements.

Lease commitments

The Group has £7 million of lease commitments (2020-21: £16 million) relating to leases that have been signed but not yet commenced

at the year-end date. These commitments have not been provided for in the Financial Statements.

28. 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 25). 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, any damages may be awarded but the amount and timing is uncertain.

29. Related party information

Related party transactions

During the reporting year, the Group entered into transactions with related parties as follows:

52 weeks

2022

£m

52 weeks

2021

£m

Sales/recharges to:

RMPP – Defined benefit pension plan (administration and investment service recharge) 6 7

Mallzee Ltd – 1

Purchases/recharges from:

Associate undertaking (Quadrant Catering Limited) – (4)

Balances outstanding at the reporting year end are unsecured, interest free and settlement is made by cash.

Key management compensation

52 weeks

2022

£’000

52 weeks

2021

£’000

Short-term employee benefits (4,094) (3,037)

Post-employment benefits (5) (10)

Other long-term benefits (346) (267)

Termination benefits – (1,233)

Share-based payments (1,008) (1,339)

Total (5,453) (5,886)

Key management are considered to be the Executive and Non-Executive Directors of Royal Mail plc, plus a specific population of

Persons Discharging Managerial Responsibilities. Remuneration relates to the period for which they are key management.

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. The reporting year end for these entities is 27 March 2022

unless otherwise indicated.

Notes to the Consolidated Financial Statements continued

Financial Statements

Royal Mail plc

Annual Report and Financial Statements 2021-22

218

29. Related party information (continued)

Company Principal activities Country of incorporation

% equity

interest

2022

% equity

interest

2021

General Logistics Systems B.V.

1

Parcel services holding company Netherlands 100 100

Royal Mail Estates Limited Property holdings UK 100 100

RMGLS Holdco Limited Holding company UK 100 100

RM Property and Facilities Solutions Limited Facilities management UK 100 100

1 GLS’ reporting year-end date is 31 March each year. No adjustment is made in the Financial Statements in this regard on the basis that, irrespective of the Group’s

reporting year-end date (last Sunday in March) a full year of GLS results is consolidated into the Group.

The Company has complied with section 409 of the Companies Act 2006 by including, in these Financial Statements, a schedule of

interests in all undertakings (see Note 31).

30. Events after the balance sheet date

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

31. Related undertakings of Royal Mail plc

In accordance with section 409 of the Companies Act 2006, a full list of related undertakings, the country of incorporation, registered

office address and the effective percentage of equity owned, as at 27 March 2022, is disclosed below. Unless otherwise stated, the

sharecapital disclosed comprises ordinary or common shares which are held by subsidiaries of Royal Mail plc Group.

Subsidiary undertakings included in the consolidation

Company name Share class % held by Group

Austria

Traunuferstrasse 105a, 4052 Ansfelden, Austria

General Logistics Systems Austria GmbH €1,090,092.51 Ordinary shares 100.000

Belgium

Humaniteitslaan 233, 1620 Drogenbos, Belgium

General Logistics Systems Belgium N.V. €100.00 Ordinary shares 100.000

GLS Belgium Distribution S.A/N.V. Ordinary shares, no par value 100.000

Canada

10500 Ryan Avenue, Dorval, Quebec, H9P 2T7

Dicom Dedicated Fleet, Inc. Common shares, no par value 100.000

1055, Hastings Street West, Suite 1700, Vancouver (British Columbia), V6E 2E9

GLS Logistics Systems Canada Ltd. Common shares, no par value 100.000

3400 7th Avenue SW, #350, Edmonton, Alberta, T2P 3N9

A-Crop-Olis Warehousing Inc Class A Common shares 100.000

Medicine Hat Express Inc Class A Common shares 100.000

Mid-Nite Sun Transportation Ltd Class A Common shares 100.000

Rosenau Transport Ltd Class A Common shares 100.000

Wheels Transport Ltd Class A Common shares 100.000

China

Suite 966, 9F, No.2 bldg, China Central Place, No.79, Jian Guo Rd,

Chao Yang District, Beijing

EBP Consultancy (Beijing) Co. Ltd – 100.000

Croatia

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

219

Company name Share class % held by Group

Stupničke Šipkovine 22, 10255 Donji Stupnik, Croatia

General Logistics Systems Croatia d.o.o HRK 760,000.00 Ordinary shares 100.000

Czech Republic

Průmyslová 5619/1, 58601 Jihlava, Czech Republic

General Logistics Systems Czech Republic s.r.o CZK2,970,000.00 Ordinary shares

CZK30,000.00 Ordinary shares

100.000

100.000

Denmark

Kokmose 3, 6000 Kolding, Denmark

General Logistics Systems Denmark A/S DKK100.00 Ordinary shares 100.000

General Logistics Systems Express A/S DKK1,000.00 Ordinary shares 100.000

Finland

Rydöntie 6, 20360 Turku, Finland

General Logistics Systems Finland 0y €50.00 Ordinary shares 100.000

France

14 Rue Michel Labrousse, CS 93730, 31037 Toulouse Cedex 01, France

General Logistics Systems France S.A.S €50.00 Ordinary shares 100.000

GLS Invest France S.A.S €12.71 Ordinary shares 100.000

Germany

Dörrwiese 2, 36286 Neuenstein, Germany

Der Kurier Beteiligungsgesellschaft mbH €25,000.00 Ordinary shares 100.000

Der Kurier GmbH & Co. KG €2,561,572.32 Cash contribution 100.000

GLS Germany-Str. 1-7, 36286 Neuenstein, Germany

General Logistics Systems Germany GmbH & Co. OHG €47,968,004.75 Cash contribution 100.000

GLS IT Services GmbH €127,822.97 Ordinary shares 100.000

GLS Beteiligungs GmbH €7,720,507.41Ordinary shares 100.000

GLS Verwaltungs-und Service GmbH €153,387.56 Ordinary shares 100.000

GLS eCom Lab GmbH €100,000.00 Ordinary shares 100.000

GLS Mobility Solutions GmbH €100,000.00 Ordinary shares 100.000

Wendenstraße 349, 20537 Hamburg, Germany

Overnight Services GmbH Vermittlung üeberregionaler Kurierdienste €25,564.59 Ordinary shares 100.000

Guernsey

PO BOX 160, Dixcart House, St Peter Port, GY1 4EY, Guernsey

Postcap (Guernsey) Limited £1.00 Ordinary shares 100.000

Hungary

GLS Európa utca 2, 2351 Alsónémedi, Hungary

GLS General Logistics Systems Hungary Csomag-Logisztikai Kft. HUF30,000,000.00 Ordinary shares 100.000

Ireland

Unit 1 Stadium Business Park, Ballycoolin Road, Ballycoolin,

Dublin, D11 DK24, Ireland

RM Financing Operations Limited €1.00 Ordinary shares

€1.00 Redeemable preference shares

100.000

100.000

RBK Chartered Accountants, Block A, Park View House, Beech Hill Office Campus,

Beech Hill Road, Clonskeagh Dublin 4, DO4 X7V2, Ireland

31. Related undertakings of Royal Mail plc (continued)

Notes to the Consolidated Financial Statements continued

Financial Statements

Royal Mail plc

Annual Report and Financial Statements 2021-22

220

Company name Share class % held by Group

RMF Operations Designated Activity Company US$1.00 Ordinary shares

US$1.00 Redeemable

preferenceshares

100.000

–

Unit 200 Northwest Business Park, Ballycoolin, Dublin 15, Ireland

General Logistics Systems Ireland Limited €1.269738 Ordinary shares 100.000

Italy

Via Basento No. 19, 20098 San Giuliano Milanese, Italy

Agone S.r.L €10,400.00 Ordinary shares 100.000

General Logistics Systems Enterprise S.r.L €1,016,000.00 Ordinary shares 100.000

General Logistics Systems Italy S.p.A. €0.52 Ordinary shares 100.000

Gruppo Executive Societa Consortile a.r.l €0.51 Ordinary shares 84.22

Luxembourg

Zae Op Zaemer 24, 4950 Bascharage, Luxembourg

General Logistics Systems Belgium S.A. Succursale de Luxembourg

1

– –

The Netherlands

Breguetlaan 28-30, 1438 BC Oude Meer, The Netherlands

General Logistics Systems B.V. €100.00 Common shares 100.000

Proostwetering 40, 3543 AG Utrecht, The Netherlands

General Logistics Systems Netherlands B.V. €50.00 Ordinary shares 100.000

GLS Netherlands Holding B.V. €50.00 Ordinary shares 100.000

GLS Netherlands Services B.V. €50.00 Ordinary shares 100.000

Poland

Ul. Tęczowa 10, Gluchowo, 62-052 Komorniki, Poland

General Logistics Systems Poland Spolka zo.o PLN1,721.00 100.000

Portugal

Rua da Bica, No. 10, 2669-608 Venda do Pinheiro, Portugal

General Logistics Systems Portugal Lda €102,000.00 quota

€97,900.00 quota

€100.00 quota

100.000

Romania

3, Str. Stefan cel Mare, Parcul Industrial Selimbar, 557260 Selimbar, Romania

GLS General Logistics Systems Srl RON4,000.00 Ordinary shares

RON396,000.00 Ordinary shares

100.000

100.000

Slovakia

Budča 1039, 962 33 Budča, Slovakia

GLS General Logistics Systems Slovakia s.r.o SK2,970,000.00 Ordinary shares

SK30,000.00 Ordinary shares

100.000

100.000

Slovenia

Cesta v Prod 84, 1000 Ljubljana, Slovenia

General Logistics Systems, logisticne storitve, d.o.o. €751,127.00 Ordinary shares 100.000

Spain

Avenida Fuentemar 18, 28823 Coslada, Madrid, Spain

1 Branch of GLS Belgium. No shares are issued or held.

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

221

Company name Share class % held by Group

Distribuidora de Electrodomésticos Aceval, S.A. €0.42 Ordinary shares 100.000

General Logistics Systems Spain S.A €60.10 Ordinary shares 100.000

UK

185 Farringdon Road, London, EC1A 1AA

Angard Staffing Solutions Limited £1.00 Ordinary shares 100.000

Intersoft Systems & Programming Limited £1.00 Ordinary shares 100.000

Nine Elms Parkside Estate Management Company Limited

2

£1.00 Ordinary shares 100.000

Parcelforce Limited £1.00 Ordinary shares 100.000

Revisecatch Limited £0.01 Ordinary shares 100.000

RM (International) Limited £1.00 Ordinary shares 100.000

RMSEPP Pensions Trustees (2050) Limited £1.00 Ordinary shares 100.000

Royal Mail Courier Services Ltd £1.00 Ordinary shares 100.000

Royal Mail Enterprises Limited £1.00 Ordinary shares 100.000

Royal Mail Estates Limited £1.00 Ordinary shares 100.000

Royal Mail Group Limited £1.00 Ordinary shares 100.000

Royal Mail Innovations Limited £1.00 Ordinary shares 100.000

RMGLS Holdco Limited £1.00 Ordinary shares 100.000

RM Finance CAD Ltd £1.00 Ordinary shares

CAD1.00 Ordinary shares

100.000

100.000

Storefeeder Ltd £1.00 Ordinary shares 100.000

Highbank House, Exchange Street, Stockport, Cheshire, SK3 0ET, United Kingdom

RM Property and Facilities Solutions Limited (formerly Romec Limited) £1.00 Ordinary shares

£1.00 B shares

£1.00 C shares

98.040

0.980

0.980

Romec Enterprises Limited £1.00 Ordinary shares 100.000

11 Ironmonger Lane, London, EC2V 8EY, United Kingdom

Royal Mail Pensions Trustees Limited £1.00 Ordinary shares 100.000

US

Registered Agent Solutions Inc.

838 Walker Road, Suite 21-2 Dover, Delaware 19904, US

General Logistics Systems North America Inc. USD 0.001 common stock 100.000

4000 Executive Parkway, Suite 295, San Ramon, CA 94583, US

General Logistics Systems US Interim, Inc USD 1.00 Common stock 100.000

General Logistics Systems US, Inc Common stock, no par value 100.000

Postal Express, Inc. Common stock, no par value 100.000

9 East Loockerman Street, Suite 311, Dover, Delaware 19901, US

Dicom JD, LLC.

3

100 Shares, no par value 100.000

6750 South Longe Street Suite 100 Manteca, CA 95206 US

GLS US Freight, Inc. (previously Mountain Valley Express Co, Inc.) Common shares 100.000

GLS Solutions, Inc. (previously MVE Supply Chain Solutions, Inc.)

4

Common stock, no par value 100.000

2 Limited by guarantee.

3 Member managed company.

4 Trades under the name Mountain Valley Freight Solutions.

31. Related undertakings of Royal Mail plc (continued)

Notes to the Consolidated Financial Statements continued

Financial Statements

Royal Mail plc

Annual Report and Financial Statements 2021-22

222

Associate undertakings

Company name Share class % held by Group

Associates

Australia

Level 1, 60 Toorak Road, South Yarra, VIC 3141

Market Engine Global Pty Limited

5

AUD1.00 Preference shares 34.474

United Kingdom

24a Nottingham Road, Loughborough, LE11 1EU

Charac Limited B Ordinary shares 33.300

30 Finsbury Square, London, EC2A 1AG £1.00 Ordinary A shares 51.000

Quadrant Catering Limited

70 Margaret Street, London, W1W 8SS, United Kingdom

JICMAIL Limited

2

– 20.000

Investments

Company name Share class % held by Group

Investments

United Kingdom

Suite 2, Ground Floor Orchard Brae House, 30 Queensferry Road, Edinburgh, EH4

Mallzee Ltd £0.01 Ordinary shares 19.500

Aviva, Wellington Row, York, North Yorkshire, YO90,1WR

Voyager Park South Management Company Limited

2

Ordinary shares 5.500

5 Deregistered 25 April 2022.

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

223

Statement of changes in equity

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

Share capital

£m

Retained

earnings

£m

Total equity

£m

At 29 March 2020 10 2,072 2,082

Loss for the year – (3) (3)

Share-based payments – 5 5

At 28 March 2021 10 2,074 2,084

Profit for the year – 1,098 1,098

Share buyback – (201) (201)

Purchase of own shares – (17) (17)

Share-based payments – 4 4

Dividend paid – (366) (366)

At 27 March 2022 10 2,592 2,602

Balance sheet

At 27 March 2022 and 28 March 2021

Registered number: 08680755

Notes

At 27 March

2022

£m

At 28 March

2021

£m

Non-current assets

Investment in subsidiaries 6 2,912 2,127

Trade and other receivables 7 611 895

Total non-current assets 3,523 3,022

Current liabilities

Trade and other payables 8 (49) (43)

Net current liabilities (49) (43)

Interest-bearing loans and borrowings 9 (872) (895)

Net assets 2,602 2,084

Equity

Share capital 10 10 10

Retained earnings 2,592 2,074

Total equity 2,602 2,084

The balance sheet was approved and authorised for issue by the Board of Directors on 18 May 2022 and signed on its behalf by:

Mick Jeavons

Chief Financial Officer

Royal Mail plc

Parent Company Financial Statements

Financial Statements

Royal Mail plc

Annual Report and Financial Statements 2021-22

224

1. Parent Company accounting policies

Accounting reference date

The 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).

Authorisation of Financial Statements and statement of compliance with FRS 101

The Financial Statements of the Company for the year ended 27 March 2022 were authorised for issue by the Board of Directors on

18 May 2022. The Company is incorporated and domiciled in England and Wales.

These Financial Statements were prepared in accordance with Financial Reporting Standard 101 ‘Reduced Disclosure Framework’

(FRS101) and in accordance with applicable accounting standards.

The Company has not presented its own income statement, as permitted by section 408 of the Companies Act 2006. However, the results

of the Company are presented in Note 4 to these Parent Company Financial Statements.

Basis of preparation

The Financial Statements have been prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework

(‘FRS101’). In preparing these Financial Statements, the Company applies the recognition, measurement and disclosure requirements

ofUK-adopted international accounting standards (‘UK-adopted IFRS’) in conformity with the requirements of the Companies Act 2006,

butmakes amendments where necessary inorder to comply with Companies Act 2006, and has set out below where advantage of the

FRS101 disclosure exemptions has been taken:

(a) The requirements of IFRS 7 ‘Financial Instruments: Disclosures’

1

.

(b) The requirements of paragraphs 91-99 of IFRS 13 ‘Fair Value Measurement’ (disclosure of valuation techniques and inputs used

forfair value measurement of assets and liabilities)

1

.

(c) The requirements of the second sentence of paragraph 110 and paragraphs 113(a), 114, 115, 118, 119(a) to (c), 120 to 127 and 129

ofIFRS 15 ‘Revenue from Contracts with Customers’.

(d) The requirement in paragraph 38 of IAS 1 ‘Presentation of Financial Statements’ to present comparative information in respect of:

(i)paragraph 79(a)(iv) of IAS 1 (reconciliation of shares outstanding).

(e) The requirements of paragraphs 10(d), 10(f), 16, 38A, 38B-D, 40A-D, 111 and 134-136 of IAS 1 ‘Presentation of Financial Statements’.

(f) The requirements of IAS 7 ‘Statement of Cash Flows’.

(g) The requirements of paragraphs 17 and 18(a) of IAS 24 ‘Related Party Disclosures’ (details of key management compensation and

related party transaction amounts).

(h) The requirements in IAS 24 ‘Related Party Disclosures’ to disclose related party transactions entered into between two or more

members of a group, provided that any subsidiary which is a party to the transaction is wholly owned by such a member.

(i) The requirements of paragraphs 30 and 31 of IAS 8 ‘Accounting Policies, Changes in Accounting Estimates and Errors’.

Changes in accounting policy

The accounting policies are consistent with those of the previous year except for the following new policy:

Business combinations under common control

The Company undertakes ‘common control business combinations’ using the book value (carry-over) basis of accounting. During the

reporting year, this policy has been applied to the transfer of RMGLS Holdco Limited to the Company, from Royal Mail Group Limited

(seeNote 6).

Key sources of estimation uncertainty and critical accounting judgements

Due to the relatively straightforward nature of the Company and its activities, it is Management’s view that there are no significant

estimates or accounting judgements applied in the preparation of these Financial Statements.

Investment in subsidiaries

The investment in subsidiaries is stated at cost, and includes deemed capital contributions arising from share-based payment

transactions, lessany accumulated impairment losses.

Trade receivables

Trade receivables are recognised at the original invoice amount less an allowance for any non-collectable amounts, including where

collection is no longer probable.

2. Directors’ remuneration

The Directors of the Company are not paid any fees by the Company for their services as Directors of the Company. The Directors are paid

fees by other companies of the Group. This remuneration is disclosed in the Group Consolidated Financial Statements (see Note 5) and in

the Group Directors’ Remuneration Report on page 110.

3. Auditor’s remuneration

The auditor of the Company is not paid fees by the Company. The auditor of the Company is paid fees by other companies of the Group.

This remuneration is disclosed in the Group Consolidated Financial Statements (see Note 4).

1 Exemption taken as equivalent disclosures are included within the Consolidated Financial Statements of Royal Mail plc.

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

225

4. Income statement

The Company is a non-trading company. The profit for the year of £1,098 million (2020-21: loss of £3 million) is primarily the net sum of:

a £781 million dividend (2020-21: £nil) received from Royal Mail Group Limited; a £324 million dividend received from RMGLS Holdco

Limited (2020-21: £nil); management charges to and from Royal Mail Group Limited; and net interest on the €500 million bond, the

€550 million bond and intercompany balances with Royal Mail Group Limited. A profit of £23 million (2020-21: profit of £40 million)

onretranslation of the bond liabilities and a loss of £23 million (2020-21: loss of £40 million) on the retranslation of intercompany

balances with Royal Mail Group Limited has also been recognised in the year.

5. Taxation

There is no tax charge/credit for the year.

6. Investment in subsidiaries

At 27 March

2022

£m

At 28 March

2021

£m

At 29 March 2021 and 30 March 2020 – investment in Royal Mail Group Limited 2,127 2,122

Distribution of RMGLS Holdco Limited to Royal Mail plc by Royal Mail Group Limited 781 –

Transfer of investment in Royal Mail Group Limited to RMGLS Holdco Limited (2,127) –

Issue of shares by RMGLS Holdco Limited to RM plc – settlement of Royal Mail Group Limited transfer 2,127 –

Charge for Employee Free Shares/LTIP/DSBP – investment in Royal Mail Group Limited 4 5

At 27 March 2022 and 28 March 2021 2,912 2,127

On 28 June 2021, Royal Mail Group Limited transferred its subsidiary, RMGLS Holdco Limited (previously known as Royal Mail

Investments Limited, which holds the investment in GLS B.V.) to the Company. Subsequently, on 31 August 2021, Royal Mail Group

Limited was transferred to RMGLS Holdco Limited in exchange for an issue of shares by RMGLS Holdco Limited to RM plc. All

transactions were undertaken at book value. The primary objective of this internal restructure is to align the legal entity structure

withthe Group’s new governance structure – two separate CEOs for the UK andGLS businesses, who each run their own respective

group and report to the Royal Mail plc Board.

7. Trade and other receivables

This balance consists of intercompany loans to Royal Mail Group Limited amounting to the proceeds from the issue of the €500 million

bond and the issue of the €550 million bond (see Note 9). The intercompany loan is deemed to be a non-current asset for the year ended

March 2022, as the Company’s intention at the balance sheet date is that the loans will not to be settled by Royal Mail Group Limited

within the next 12 months.

8. Trade and other payables

This balance comprises £40 million (2020-21: £34 million) intercompany payables with Royal Mail Group Limited and £9 million

(2020-21: £9 million) external interest payable.

9. Interest-bearing loans and borrowings

In July 2014, the Company issued €500 million 2.375% Senior Fixed Rate Notes due July 2024 with a fixed annual interest coupon

of2.375%. The proceeds raised were loaned to Royal Mail Group Limited. In October 2019, the Company issued €550 million 1.25%

Senior Fixed Rate Notes due October 2026 with a fixed annual interest coupon of 1.25%. The proceeds raised were loaned to

RoyalMailGroup Limited.

10. Share capital

At 27 March

2022

£m

At 28 March

2021

£m

Authorised and issued

956,193,475 (2020-21; 1,000,000,000) ordinary shares of £0.01 each 10 10

Total 10 10

Of the issued ordinary shares, a total of 2,265,008 (2020-21: 572,816) are held by an Employee Benefit Trustee (EBT) administered by

Sanne Fiduciary Services Limited. These shares are treated as treasury shares for accounting purposes in accordance with IAS 32

‘Financial Instruments: Presentation’. The Company, however, does not hold any shares in treasury.

The EBT is funded by the Company and has been treated as an extension of the Company for accounting purposes within these

FinancialStatements.

On 18 November 2021, the Company announced a share buyback programme. As a result, 43,806,525 ordinary shares were purchased

by the Company during the year at an average purchase price of 458.3 pence per share for a total consideration of £200.8 million. All of

the purchased shares were subsequently cancelled.

Royal Mail plc Parent Company Financial Statements continued

Financial Statements

Royal Mail plc

Annual Report and Financial Statements 2021-22

226

Annual General Meeting

The 2022 AGM will be held on Wednesday 20 July 2022. Full

detailsof the business to be considered at the meeting will

beincluded in the Notice of Annual General Meeting that will

besenttoshareholders and published on our website at

www.royalmailgroup.com/en/investors/annual-general-meetings/.

Final dividend

The Board is recommending the payment of a final dividend of

13.3pence per share. 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. 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.

Managing your shares online

Shareholders can register through Shareview, via a platform provided

by the Company’s registrars, to access shareholder information online

at www.shareview.co.uk. This service allows you to:

 Manage your shares online.

 Receive notifications of new shareholder information by e-mail.

 Arrange dividend payments.

 Update personal records.

When registering, you will need to have your shareholder reference

number which can be found on your share certificate, dividend

voucher or AGM voting documents.

Be scam smart

Investment scams are designed to look like genuine investments.

Spot the warning signs

Have you been:

 Contacted out of the blue?

 Promised tempting returns and told the investment is safe?

 Called repeatedly?

 Told the offer is only available for a limited time?

If so, you might have been contacted by fraudsters.

Avoid investment fraud

Reject cold calls. If you have received unsolicited contact about

aninvestment opportunity, the chances are it is a high-risk

investment or a scam. You should treat the call with extreme

caution. The safest thing to do is to hang up.

Check the FCA Warning List

The FCA Warning List is a list of firms the FCA has identified

asoperating without its authorisation.

Get impartial advice

Think about getting impartial financial advice before you hand

overany money. Seek advice from someone unconnected to

thefirm that has approached you.

Report a scam

If you suspect that you have been approached by fraudsters,

pleasetell the FCA using the reporting form at www.fca.org.uk/

consumers/report-scam-us. You can also call the FCA Consumer

Helpline on 0800 111 6768.

If you have lost money to investment fraud, you should report it to

Action Fraud on 0300 123 2040 or online at www.actionfraud.police.uk.

Find out more at www.fca.org.uk/scamsmart.

Remember: if it sounds too good to be true, it probably is.

Information for investors

Our website provides information for investors, such as trading

updates, share price information, AGM and dividend information,

shareholder FAQs and results and reports. The website can be

accessed via www.royalmailgroup.com/en/investors/.

If you have any queries relating to your shareholding, you can also

email shareholderquestions@royalmail.com.

Company contact details

Registered office

Royal Mail plc

185 Farringdon Road

London

EC1A 1AA

Registered in England and Wales

Company number 08680755

Investor Relations

investorrelations@royalmail.com

Director of Investor Relations – John Crosse

Company Secretariat

cosec@royalmail.com

Company Secretary – Mark Amsden

Company advisers

Registrar

Equiniti

Aspect House

Spencer Road

Lancing

West Sussex

BN99 6DA

www.shareview.co.uk

Tel: 0371 384 2656 (from outside the UK: +44 (0)121 415 7086).

Linesare open 8:30am to 5:30pm UK time, Monday to Friday,

excluding public holidays in England and Wales.

Independent auditor

KPMG LLP

Corporate brokers

Bank of America

Barclays Bank plc

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

227

Shareholder Information

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 £1,826 million

compared with cumulative adjusted profit after tax of

£2,071 million. Annual reported profit after tax showed a

rangeof£620 million to £161 million while adjusted profit

aftertaxshowed a range of £595 million to £196 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’.

Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

228

Glossary of Alternative Performance Measures

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 (£m) Reported

Specific

items and

pension

adjustment

1

Adjusted Reported

Specific

itemsand

pension

adjustment

1

Adjusted

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)

1

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.

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

229

Segmental reported results

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

52 weeks March 2022 52 weeks March 2021

Group (£m) Royal Mail GLS

Intragroup

eliminations Group Royal Mail GLS

Intragroup

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.

Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

230

Glossary of Alternative Performance Measures continued

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.

(£m)

52weeks

March

2022

52weeks

March

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’.

(£m)

Reported

52weeks

March

2022

Re-presented

reported

52weeks

March

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 £192 million (2020-21: £188 million) shown in

thestatutory cash flow is made up of the capital element of operating lease payments of

£166 million (2020-21: £156 million) and the capital element of finance lease payments of

£26 million (2020-21: £32 million).

Strategic Report Corporate Governance Financial Statements Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

231

Alternative Performance Measures

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’.

(£m)

Reported

52weeks

March

2022

Re-presented

reported

52weeks

March

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 £192 million (2020-21: £188 million) shown in

thestatutory cash flow is made up of the capital element of operating lease payments

of£166 million (2020-21: £156 million) and the capital element of finance lease payments

of£26 million (2020-21: £32 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. Details of the borrowing

facilities in place and theamounts drawn can be found in Note 23

ofthe Financial Statements (page 206). 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.

(£m)

At

27March

2022

At

28 March

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 £23 million, largely as a result

offavourable exchange rate movements on the value of bonds.

Cash and cash equivalents and Investments decreased by

£361 million, largely as a result of the payment of £366 million

inexternal dividends (2020-21: no dividends paid) and £201 million

share buyback offset by free cash inflow of £420 million

(2020-21: £780 million inflow) and by the capital element of

leaserepayments of £192 million (2020-21: £188 million).

Net debt excludes £192 million (2020-21: £191 million) related to the

RMPP pension scheme of the total £213 million (2020-21: £212 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.

Additional Information

Royal Mail plc

Annual Report and Financial Statements 2021-22

232

Alternative Performance Measures (APMs) continued

Consultancy, design and production

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Design and production

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Disclaimers

This document contains certain forward-looking statements

concerning the Group’s business, financial condition, results

ofoperations and certain of the Group’s plans, objectives,

assumptions, projections, expectations or beliefs with respect to

these items. Forward-looking statements are sometimes, but not

always, identified by their use of a date in the future or such words

as ‘anticipates’, ‘aims’, ‘due’,‘could’, ‘may’, ‘will’, ‘should’, ‘expects’,

‘believes’, ‘intends’, ‘plans’, ‘potential’, ‘targets’, ‘goal’ or ‘estimates’.

Forward-looking statements involve known and unknown risks,

uncertainties and other factors, which may cause the Group’s

actual financial condition, performance and results to differ

materially from the plans, goals, objectives and expectations set

out in the forward-looking statements included in this document.

Accordingly, readers are cautioned not to place undue reliance

onforward-lookingstatements.

By their nature, forward-looking statements relate to events

anddepend on circumstances that will occur in the future and are

inherently unpredictable. Such forward-looking statements should,

therefore, be considered in light of various important factors that

could cause actual results and developments to differ materially

from those expressed or implied by these forward-looking

statements. These factorsinclude, among other things: changes in

the economies and markets in which the Group operates; changes

in the regulatory regime within which the Group operates; changes

in interest and exchange rates; the impact of competitive products

and pricing; the occurrence of major operational problems; the

lossof major customers; undertakings and guarantees relating

topension funds; contingent liabilities; theimpact of legal or other

proceedings against, or which otherwise affect, the Group; and

risks associated withtheGroup’s overseasoperations.

All written or verbal forward-looking statements, made in this

document or made subsequently, which are attributable to the

Group oranypersons acting on their behalf are expressly qualified

in their entirety by the factors referred to above. No assurance

canbe given thatthe forward-looking statements in this document

will be realised; actual events or results may differ materially

asaresult of risks and uncertainties facing the Group. Subject

tocompliance with applicable law and regulation, the Company

does not intend to update theforward-looking statements in this

document to reflect events or circumstances after the date of

thisdocument, and does not undertake any obligation to do so.

Royal Mail, the Cruciform and the Parcelforce Worldwide logo are registered

trademarks of Royal Mail Group Limited. The GLS logo is a registered trademark

ofGeneral Logistics Systems B.V. Annual Report2021-22 ©Royal Mail Group

Limited2022. All rights reserved.

Forward-Looking Statements