Isle of Man Post Office - Parliament of the Isle of Man

Isle of Man Post Office

Report and accounts

For the 52 weeks ended 30 March 2014

KirreeRonan

Text Box

GD 2014/0072


Contents Page

Officers and Professional Advisers 2

Chairman's Statement 3 and 4

Chief Executive Officer's Report 5 to 7

Statement of Internal Control 7 to 12

Statement of Responsibilities of the Board 13

Report of the Independent Auditors 14

Profit and Loss Account 15

Statement of Recognised Gains and Losses 16

Note of Historical Cost Profits and Losses 16

Balance Sheet 17

Cash Flow Statement 18

Notes 19 to 29


Officers and Professional Advisers

Headquarters

Spring Valley Industrial Estate Douglas Isle of Man IM2 1 AA

Board Members

Mr C G Corkish MBE MLC —Chairman to 19/03/14 Mr G Cregeen MHK — Chairman appointed 19/03/14 Mr R Ronan MHK — Vice Chairman to 19/03/14 Mr J Turner MLC — Vice Chairman appointed 19/03/14 Mr C D Pemberton The Ven B Partington OBE Mr K Roosen

Chief Executive Officer

Mr M Kelly

Principal Bankers

Isle of Man Bank 2 Athol Street Douglas Isle of Man IM1 1JA

Principal Advocates

HM Attorney General Attorney General's Chambers 3rd Floor, St Mary's Court Douglas Isle of Man IM1 1 EU

Cains Advocates Ltd Fort Anne Douglas Isle of Man IM1 5PD

Auditors

KPMG Audit LLC Heritage Court 41 Athol Street Douglas Isle of Man IM99 1HN

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Chairman's Statement

I am pleased to present the accounts of the Isle of Man Post Office for the 52 weeks ended 30 March 2014.

I am delighted to have been appointed Chairman at perhaps one of the most challenging but exciting times for the Isle of Man Post Office. The last 12 months have presented significant on-going challenges for the postal industry, and we have not been exempt.

Customer habits are changing, mail volumes and payment transactions are falling and so we have continued to identify new business opportunities to bridge the ever increasing gap that these declines have created to help replace lost revenues.

During the financial year we have been successful in mitigating some of the lost revenues through continued implementation of our diversification strategy, developing new products and entering new markets particularly within the digital technologies arena.

Despite the challenges to our traditional postal services we remain committed to strengthening our position in the market for the services and products we offer and to continually identify new markets for them. The Post Office continues to have a strong foothold here on the Island, something we remain very proud of, however with the continued growth of technology and ongoing trends in digital communications we must now also concentrate on winning more business in the UK and rest of the world. This focus should enable the business to sustain and develop new revenue streams and, in turn, help to safeguard jobs and services here on the Island.

We marked a milestone in the Post Office's history in July 2013 when the Post Office reached its 40th anniversary as a Manx run business. I believe the Post Office has a vital role to play in the Island's infrastructure through supporting the local community and we therefore must ensure that Island residents and businesses continue to be provided with a high level of service through our retail branches, kiosks and website.

During the course of the year we made significant progress with the passing into law of the Post Office (Amendment) Act 2013. The legislation governing the postal market for the last 20 years became outdated, and on 20 May 2014 the new legislation came into force. I would like to thank my colleagues in Tynwald for supporting these changes; they will be vital to the on-going success of the business and will assist in our ability to attract new business to the Island and to remain as a key part in the modern communication chain both locally and internationally.

The on-going requirement to pay £2m per annum to Treasury irrespective of profit is a challenge. This places pressure on us to continue to develop new revenue streams through diversification and continually improve our service delivery through different initiatives in order to meet the ever changing demands of our stakeholders.

One of the ways we have improved services to customers during the year was through the introduction of a state of the art website to provide our customers with improved online services in addition to our retail offering. We have also expanded our reach here on the Island with further kiosks introduced in convenient locations for our customers and we have developed our eGaming direct mail service to include a mobile offering.

The Board and I are convinced that the Post Office should be the obvious vehicle for Government when considering how to make its services and information available to the public. We are pleased to be working with the Social Security Division of Treasury to examine options for cheaper, more convenient methods of distributing benefit payments around the Island. I believe this is a model which will have many similar uses across the broad spectrum of Government services.

The overall strategic plan for the business was reviewed in March. This item defines our vision, mission and values. The key strategies and their elements interrelate to create a cohesive and mutually supportive plan, structuring the business to enable it to meet with the demands and challenges that lie ahead.

The Isle of Man Post Office is very fortunate to have an established long term, loyal and dedicated workforce which delivers a high level of commitment and service and of which we are all very proud. I would like,

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therefore, to thank every staff member for their tremendous efforts across the whole business over the last year as well as my fellow Board Members, the previous Chairman and Vice Chairman.

G Cregeeiv MHK Chairman

4


Chief Executive Officer's Report

INTRODUCTION

I am pleased to report a positive performance during what has been another challenging year for the global postal market. This year's results reflect the demanding market environment and continued changes and challenges in our traditional revenue streams.

Our business remains profitable and we have made many positive steps towards achieving our strategic goals,

however a £2m annual dividend to Treasury creates substantial commercial pressure for the business.

As the global postal market undergoes continuous rapid change we must remain agile and able to adapt and diversify our business, while continuing to support our local community. We remain committed to robust

commercial diversification which will help to deliver future profitability and sustainability. This diversification

must be global as the Island's economy is not sufficiently large to support the postal infrastructure provided today and many of the decision makers in our corporate clients are based off-Island.

The on-going support of our stakeholders, including Isle of Man Government, is critical to the continued success of our business.

OUR RESULTS

Net profit fell by £872k (31%) as major commercial customers moved their focus away from direct mail. The effect of the business's trading position would have been even greater but we were successful in introducing new revenues from alternative markets to partially mitigate the position.

Operating margin fell from 7.8% to 4.5%, perfectly illustrating the vulnerability of the business to changes in

its revenue streams. Our main costs lie in our delivery network, designed to support our universal service obligations. These costs are to a large part fixed and therefore a reduction in top line revenue feeds almost directly through to profit.

We remain committed to paying a £2m per annum dividend to Treasury; but this was only possible this year after a transfer from our reserves of £30k.

OUR PROGRESS

With over 40 years of communications experience and strong client relationships we are in an excellent position to continue to expand our global client base.

The progress made with the Post Office Amendment Bill will help us further develop our business connections

off-Island. I would like to thank Tynwald for progressing the Bill; a more modernised Post Office Act is an important part of our commercial strategy to win more off-Island business, and will also enable us to attract new business to the Island.

In this era of digital communication, technology remains a key to the future success of Isle of Man Post Office. The most visible sign of this investment was perhaps the launch of a new corporate website .f

The new site offers our customers a range of enhanced products and services, online tools including rearrangement of deliveries, calculation of postage, a postcode finder and a Track and Trace tool. The website has already shown significant increases in traffic and online transactions and is a central part of our digital strategy to support our on-going diversification to new markets.

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IMS

Our accreditations remain a key assurance, reinforcing the trust our customers have in us and we value this

highly. During the year we maintained our ISO 27001 and 9001 and PCIDSS accreditations and continue to

maintain the highest international standards for data security and quality. Linked to this, we continue to develop

and invest in our staff's skills, abilities, knowledge and ambition to provide an efficient and effective business.

MAILS

As mail volumes continue to decline, parcel volumes continue to increase. Our strategy for parcels is to

improve the options for how they have their parcels delivered and to increase productivity by increasing first

time delivery rates. During 2013, we introduced a 'safe place' initiative which allows customers to identify a

place where their parcel could be delivered if they're not available.

STAMPS AND COINS

Our Stamps and Coins division continues to produce outstanding products which compete with the best in the

world. The development of our new corporate website

has also helped us to showcase our

fantastic products across the world.

RETAIL NETWORK

Our links with the local community are critical to our local success, and we have introduced new services to

our ten postal kiosks across the Island. The additional services form part of an on-going plan to introduce new

payment facilities via the kiosks in a bid to offer customers more choice in how and where they transact their

business. Pay and Post kiosks provide a quick and simple way to purchase stamps, weigh and pay for letters

and parcels and pay utility bills, including gas, phone, electricity and government rates. Customers use a simple

touch screen device enabling them to beat any queue and this latest functionality will be a welcome boost to

customers.

During the year the future role of the Post Office in the distribution of cash benefits to residents on the Island

looked under threat. This would have had substantial implications for the viability of the retail network but I

am pleased to be able to report that an alternative solution has been identified and is being developed which

will maintain the Post Office's role.

THE FUTURE

"We will be trusted, dynamic, progressive and successful"

As mail volumes continue to fall globally, Isle of Man Post Office continues its strategy of diversification to

bridge the gap between our financial goals and our falling core business. The Board have recently agreed an

updated strategic plan which takes us to 2017 and outlines the core objectives we need to achieve in order to

meet our target:

1. Sustain profitable growth

2. Customer focussed, commercial and innovative culture

3. Manage key stakeholder relationships

4. Continuous review of long term strategic actions for improvement

We will continue to build on our trusted status and work with Government to ensure the viability of our Post

Office network and provide critical services to the local community.

The global communications marketplace is becoming more technically advanced than ever, so our ability to

react and adapt is more critical now than ever. High quality products hacked up by our accreditations are 6


becoming our benchmark standard and we will continue to build on these to ensure we provide the security and quality that our customers expect.

With great professionalism, my colleagues throughout Isle of Man Post Office have remained resilient, committed and focussed on delivering the businesses objectives and our customers' needs. I am very proud

that we continue to deliver a high quality of service for our customers whilst achieving the stretching financial targets set for us.

As our business adapts to meet the needs of a changing, dynamic and demanding global market place, our people are our key asset. I would like to thank each of our staff for their continued contribution to our business.

Mike Kelly

Chief Executive Officer

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Statement of Internal Control

Introduction The Isle of Man Post Office is constituted as a Statutory Board of Tynwald under The Post Office Act 1993. This report is made by the Isle of Man Post Office to Isle of Man Government Treasury in accordance with the requirements of the Isle of Man Government's Corporate Governance Principles and Code of Conduct ("the Code").

The Isle of Man Post Office's Strategic Plan for the five year period 2014-2018 was reviewed in March 2014. It defines the Isle of Man Post Office's vision, mission and values, and acknowledges its major stakeholders. The Plan contains a strategy statement which includes four key strategies. These key strategies and their elements interrelate to create a cohesive and mutually supportive plan, structuring the business to enable it to meet the demands and challenges ahead.

Responsibilities of the Board and the Accounting Officer The Board controls the strategy and policy within the Isle of Man Post Office. It is the Board's responsibility to ensure that the work of the Accounting Officer and other senior officers supports the strategy and policy approved by the Board.

As Accounting Officer, the Chief Executive of Isle of Man Post Office is responsible for implementing and maintaining systems of Internal Control and Corporate Governance which: • ensure compliance with legislation and other regulations; • safeguard public money, ensure that it is properly accounted for and that it is used economically,

efficiently and effectively; and • support the achievement of the strategy and policies approved by the Board.

In discharging this responsibility, the Chief Executive works with senior officers to put in place arrangements for the governance of the Isle of Man Post Office's affairs and the stewardship of resources, in accordance with the Code.

Internal Control and Corporate Governance environment The system of Internal Control is based on ongoing processes designed to: • Identify the principal risks to the achievement of the organisation's strategic aims and objectives. • Identify the principal risks associated with the organisation's operational activities. • Consistently evaluate the nature and extent of the above risks and agree appropriate mitigating controls. • Provide assurance that key risks are being managed efficiently, effectively and economically and that

existing controls are robust. • Ensure adherence throughout the organisation to Isle of Man Post Office policies and relevant legislation.

The system of Internal Control is designed to manage rather than eliminate the risk of failure to achieve the organisation's policies, aims and objectives. It can, therefore, only provide reasonable and not absolute assurance of effectiveness.

The following are considered to be the main aspects of the Internal Control and Corporate Governance framework.

Isle of Man Post Office Corporate Governance and Risk Management framework The Isle of Man Post Office has introduced a system of Corporate Governance and Risk Management which is designed to enable it to assess its performance in these areas and determine, where appropriate, relevant actions to improve the control environment. The Board of the Isle of Man Post Office has published a schedule of delegated authority to enable the day to day operation of the business.

The Board has also published a statement of powers which it has reserved solely to itself.

The Isle of Man Post Office has established risk registers at operational and strategic levels; issues arising out of these registers form part of the standing agenda at operational and Board meetings.

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The management of the organisation's most significant current and emerging risks is subject to Board oversight. A high-level summary of the current top risks faced by the business is presented quarterly to the Board, with any newly identified risks being brought to the Board's attention at the earliest opportunity. This summary includes details of the risks, the existing mitigation or controls, and any proposed improvement actions, together with assigned responsibilities and expected implementation dates. The current status (Red-Amber-Green) is evaluated for each key risk.

A formal Assurance Framework for the business was established following a co-ordinated assessment of all forms of assurance available to the Board and its Audit and Risk Committee. This framework continues to be revised and updated. The Assurance Framework is designed to be a systematic mechanism to ensure the adequacy and operation of existing key controls and systems to manage the Isle of Man Post Office's major risks.

The Isle of Man Post Office's Internal Audit Plan is an integral part of the above framework, providing appropriately focused supplementary or independent assurance. Audit needs are determined according to the strength, independence and criticality of each of the current assurances.

Board meetings The Board Members are non-executive and their appointment is approved by Tynwald.

The Board meets regularly and consists of a Chairman and four other Board Members. Board meetings are also attended by the Chief Executive and Executive Directors. The Board receives reports from the Isle of Man Post Office Executives on operational matters and ensures that the work of the Accounting Officer and other senior Executives supports the strategy and policy approved by the Board.

A detailed, consolidated report is submitted quarterly to the Board by each Business Unit Manager / Department Head.

Audit and Risk Committee The Audit and Risk Committee is a committee of the Board and consists of two members of the Isle of Man Post Office Board. It meets quarterly. The meetings are also normally attended by the Chief Executive, Finance Director, Risk, Compliance and Audit Manager and a representative from Isle of Man Government Internal Audit. A representative from the external auditors also attends meetings as appropriate.

The Audit and Risk Committee ensures that the business maintains a systematic approach to Risk Management. It reports to the Board on issues concerning Corporate Governance, Risk, Internal Control, Financial reports and associated information issued by the Isle of Man Post Office. It is also the principal point of contact for the external auditors.

The Audit and Risk Committee is active in embedding Risk Management practices through regular comprehensive reviews of each individual department's approach to risk management. These reviews have helped to develop a wider understanding of the nature and criticality of risks affecting Isle of Man Post Office's range of activities, and provide opportunities to assess the practicality and effectiveness of existing controls and practices, and to identify improvements.

The Audit and Risk Committee is responsible for reviewing the current top risks faced by the business and reporting them to the Board.

ICT Strategy Steering Committee This committee was formed to oversee ICT strategy and development within the Isle of Man Post Office. Its Chairman is a member of the Isle of Man Post Office Board. It meets quarterly.

It is charged with reviewing and recommending an appropriate ICT strategy and oversight of major ICT enabled projects within the Post Office. The committee also reviews current and future technologies to identify commercial opportunities and potential for increased internal efficiencies.

Remuneration Committee The Remuneration Committee is a committee of the Board and consists of two members of the Isle of Man Post Office Board. It meets at least once per year. The Committee makes recommendations to the Board on Executive Directors' (including Chief Executive's) pay and conditions.

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IMS LRQA

Human Resources / Finance

Crowe, Clark & Whitehill LLC

IMS I NCC Group

Finance

ISO 27001 & ISO 9001 Surveillance SV4

Audit of systems related to superannuation scheme as part of the annual audit of the pension scheme, opinion to be given to the trustees. Level 1 PCIDSS re-

, accreditation by self-! certification

January 2014

March 2014

October 2013

KPMG Audit LLC Annual Statutory Audit

May 2013


Properties Committee The Properties Committee is a committee of the Board and is chaired by a member of the Board. It meets as required, under agreed Terms of Reference, and reviews the Business's strategy for the maintenance, development and acquisition or sale of its properties.

Isle of Man Post Office Internal Audit During the year, the Isle of Man Post Office contracted internal audit resource from the Internal Audit division of Treasury. This arrangement is for a period of two years. The Board will remain responsible for the approval of the planned audit programme whilst Internal Audit division will be responsible for delivery of the programme. A service level agreement is in place to ensure effective delivery of the service.

The Isle of Man Post Office Risk, Compliance and Audit Manager works closely with the Internal Audit division and is responsible for reporting the audit findings to the Audit and Risk Committee and for ensuring any follow up actions are executed. The Risk, Compliance and Audit manager is also charged with oversight of the business's risk management processes.

Audit activities include an agreed programme of internal auditing of Integrated Mailing Solutions ongoing compliance to ISO 9001:2008, ISO 27001:2005 standards and PCI-DSS.

External Assurances of Effectiveness Further independent assurance is gained from a number of external reviews as below:

Division Name of Review Organisation Title of Review Undertaken

Date Completed

Finance

KPMG Audit LLC

Annual Interim Audit

February 2014

Improvements made to the system of Internal Control during the year In accordance with best practice, the systems of Internal Control across the Isle of Man Post Office are subject to continuous review and improvement. Some of the most significant improvements made to the Isle of Man Post Office management of risk over this year have been:

Risk Management Improvements Made During The Year 2013 -2014 Improvement Details of Improvement

Re-Accreditation of PCI DSS Standards SAQ Level 2 to Self- Change to self-certification Certification

AML/Fraud awareness and training

Improved Staff awareness of Fraud and AML Risks with updated face to face training in the Counters division including details of document examination process and transaction recording procedures delivered. Online AML training for all other Staff identified as working in a potential risk area. Updated AML and Anti-Bribery policies now in place.

Review of account opening procedures Reviewed account opening procedures to ensure appropriate scrutiny of new business relationships.

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Review of updated CAA and RM list of restricted goods

Management of PO Boxes

Website & Process Improvements


Staff awareness through training and improved security of operations with regard to new CAA & Royal Mail rules regarding the carriage of dangerous & prohibited goods. Enhanced registration process to include disclosure of any changes of users or multiple users and specific KYC checks. Quarterly reviews of 1 Boxes to ensure appropriate usage.

Website design improved and online purchasing enabled. Creation of risk registers and process maps. Outsourcing of IT platform to Manx Telecom Tier 3 Data Centre. PCI DSS and ISO 27001 & 9001 accredited. Introduction of independent ICT systems and governance.

Adoption of BS7858:2006 (Security Screening of Individuals in a Security Environment) as best practice.

Planned improvements to the System of Internal Control Following the review of the effectiveness of the system of Internal Control and the governance structures currently in place, the following key improvements have been identified for implementation within the next financial year:

Risk Management Improvements Planned For The Forthcoming Year 2014 - 2015

IT processes and systems

Improved cable management within internal data centre.

Security screening

Details of Improvement Review environmental practices documentation and make changes as appropriate. Review of ISO documentation and processes from ISO 27001:2005 to the latest release - ISO 27001:2013. Build ICT staff knowledge to enhance risk management and widen skill bases. In-house training to improve level of knowledge and awareness of staff regarding Counter Services and use of IT systems for the recording of incidents.

Improvement

Environmental Policy Review

Review of ISO Documentation

In-house training

Enhancements to customer data management

Process Planning

Project Management

New CRM System to be evaluated.

Continue documenting Marketing processes and establish Marketing role in the BCP Plan. Creation of dedicated project team to undertake key business projects.

— —

Monthly Management Review Meetings The Chief Executive and the Executive Directors meet with managers on a monthly basis to formally review their business unit and departmental financial and operational performance.

Review of Internal Control and Corporate Governance environment The effectiveness of the Isle of Man Post Office's Internal Control and Corporate Governance arrangements is continuously assessed by the work of management and the Audit and Risk Committee. In addition, the Risk and Systems Manager worked with management to assess compliance with the Code of Corporate Governance, reviewed items on the risk registers and ensured action was being taken against outstanding issues.

Management Assurances of effectiveness As part of this continuous assessment process, the Isle of Man Post Office has developed an annual review procedure that involves Directors and senior managers completing self-assessment questionnaires on Internal Control, Risk Management and Corporate Governance arrangements within the business.

In undertaking their review, managers have given specific consideration to each of the following operating risks within their business unit:

• Business Continuity • Performance Management • Financial Management and Compliance

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• Procurement • Information Management • Value for Money • Human Resources • Change Management • Health & Safety • Environment • Corporate Governance

The Directors submit an assurance certificate to the Chief Executive on the adequacy of the control environment for the areas of the business for which they are responsible. The Chief Executive reviews the results of these assessments with the Risk, Compliance and Audit Manager, before being presented to the Audit and Risk Committee.

Report on Internal Control and Corporate Governance environment Attention is drawn to the fact that systems of Internal Control and Corporate Governance are designed to manage rather than eliminate the risk of failure to achieve objectives. As previously stated, they can therefore only provide reasonable and not absolute assurance. Accordingly, reasonable assurance is given that the Isle of Man Post Office's Internal Control and Corporate Governance arrangements are adequate and operated effectively during the period ended 30 March 2014.

Progress on Corporate Governance Implementation The Audit Plan is structured against an agreed Assurance Framework designed to provide enhanced assurance over the effectiveness of the controls and processes used to ensure the organisation's Strategic Plan objectives are progressed and achieved.

The business's commitment to Quality Management was demonstrated through the Integrated Mailing Solutions (IMS's) successful completion of its latest annual surveillance audit of the ISO-IEC 27001:2005 Information Security and ISO 9001:2008 Quality Management Systems accreditation. IMS have also now acquired the PCI-DSS self-accreditation in relation to the management of data for online credit and debit card payments.

Several policies have been approved, updated and/or disseminated during 2013-2014. These include Isle of Man Post Office Health and Safety Policy, Anti-Bribery Policy, Anti-Money Laundering Policy and Whistleblowing Policy.

Signed:

M Kelly Chief Executive

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Statement of Responsibilities of the Board

The Isle of Man Post Office is constituted under the Post Office Act 1993 as a Statutory Board of Tynwald. The Chairman and Chief Executive Officer are responsible for preparing their Statement and Report, respectively. The Board is responsible for approving the Chairman's Statement and the Chief Executive Officer's Report and in preparing the accounts, in accordance with applicable law and regulations.

The Audit Act 2006 requires the Board to prepare accounts for each financial year, which meet the requirements of the Accounts and Audit Regulations 2013, made under the Audit Act 2006. The regulations require the Board to prepare the accounts in accordance with UK Accounting Standards.

The accounts are required by law to give a true and fair view of the financial affairs of the Isle of Man Post Office for that period.

In preparing these accounts, the Board is required to:

• Select suitable accounting policies and then apply them consistently;

• Make judgements and estimates that are reasonable and prudent;

• State whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the accounts; and

• Prepare the accounts on the going concern basis unless it is inappropriate to presume that the Isle of Man Post Office will continue in operation.

The Board is responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial affairs of the Isle of Man Post Office and to enable them to ensure that the accounts comply with the Accounts and Audit Regulations 2013 made under the Audit Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Isle of Man Post Office and to prevent and detect fraud and other irregularities.

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Report of the Independent Auditors, KPMG Audit LLC, to the Isle of Man Post Office

We have audited the accounts of the Isle of Man Post Office for the 52 weeks ended 30 March 2014 which comprise the Profit and Loss Account, the Balance Sheet, the Cash Flow Statement, the Statement of Total Recognised Gains and Losses, the note of Historical Cost Profits and Losses and related notes. The financial reporting framework that has been applied in their preparation is applicable law and UK Accounting Standards.

This report is made solely to the Isle of Man Post Office, as a body, in accordance with Section 4 of the Audit Act 2006. Our audit work has been undertaken so that we might state to the Isle of Man Post Office 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 Isle of Man Post Office, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of Isle of Man Post Office and Auditors

As explained more fully in the Responsibilities Statement set out on page 13, the Board are responsible for the preparation of accounts that give a true and fair view. Our responsibility is to audit, and express an opinion on, the accounts in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors.

Scope of the audit of the accounts

An audit involves obtaining evidence about the amounts and disclosures in the accounts sufficient to give reasonable assurance that the accounts are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Isle of Man Post Office's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Board; and the overall presentation of the accounts.

Opinion on the accounts

In our opinion the accounts:

• give a true and fair view of the state of the Isle of Man Post Office's affairs as at 30 March 2014 and of its

profit for the period then ended;

• have been properly prepared in accordance with UK Accounting Standards, as modified by the Accounts and Audit Regulations 2013 made under the Audit Act 2006.

KPMG Audit LLC Chartered Accountants Heritage Court 41 Athol Street Douglas Isle of Man IM99 1HN

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Profit and Loss Account for the 52 weeks ended 30 March 2014

Note 52 weeks ended 30 March 2014

£

52 weeks ended 31 March 2013

£

Total income 1(b) 27,176,843 28,611,204 Cost of sales 1(c) (19,952,271) (20,543,454)

Gross profit 7,224,572 8,067,750

Other operating expenditure 1(c) (5,982,394) (5,819,867)

Operating profit 1,242,178 2,247,883

Interest income 728,146 594,688

Total profit for the period 2 1,970,324 2,842,571

Profit available for appropriation 1,970,324 2,842,571

Contribution to Isle of Man Government Treasury 7 (2,000,000) (2,000,000)

(Loss) / profit after contribution (29,676) 842,571

Transfer from / (to) reserves 29,676 (842,571)

Unappropriated profit carried forward

The notes on pages 19 to 29 form part of these financial statements.

The Board considers that all results derive from continuing activities.

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Statement of Total Recognised Gains and Losses for the 52 weeks ended 30 March 2014

Note

52 weeks ended 52 weeks ended

30 March 2014 31 March 2013

£ £

(Loss) / profit after contribution (29,676) 842,571

Actuarial gain / (loss) on pension scheme 9 3,272,684 (1,190,853)

Total recognised gains and losses for the period

3,243,008 (348,282)

Note of Historical Cost Profits and Losses for the 52 weeks ended 30 March 2014

Reported profit available for appropriation

Difference between historical cost depreciation charge and the actual depreciation charge for the period calculated on the revalued amount

Historical cost profit available for appropriation

Historical cost profit for the period retained after contribution to the Isle of Man Government Treasury



£ £

1,970,324 2,842,571

99,280 91,816

2,069,604 2,934,387

69,604 934,387

The notes on pages 19 to 29 form part of these financial statements.

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Finance Director Director Chief Executive Officer

These financial statements were approved by the Board on 7.31sb 2o\ behalf by:

and were signed on their

Chairman


Balance Sheet as at 30 March 2014

Note 2014 2013

Non-current assets Fixed assets 1(d), 3 9,564,030 9,767,185 Investments 4 40 40

9,564,070 9,767,225

Current assets Stocks 1(f) 116,946 160,379 Debtors 5 3,779,952 2,538,127 Amounts due from Isle of Man Government 7 115,079 75,009 Short term cash deposit 2,545,887 2,527,692 Cash at bank and in hand 11,751,100 10,201,244

18,308,964 15,502,451

Creditors: amounts falling due within one year Other creditors 6 (2,702,966) (2,933,715) Amounts due to Isle of Man Government 7 (5,651,389) (2,767,189)

(8,354,355) (5,700,904)

Net current assets 9,954,609 9,801,547

Pension scheme liability 9 (1,940,722) (5,233,823)

Net assets 17,577,957 14,334,949

Represented by: Reserves 1(i), 8 17,577,957 14,334.949

The notes on pages 19 to 29 form part of the financial statements.

17


Cash Flow Statement for the 52 weeks ended 30 March 2014

Net cash flow from operating activities

Returns on investments and servicing of finance

Note 52 weeks ended 30 March 2014

£ £

11 3,996,436


£ £

4,335,449

Interest received 41,047 139,611 Contribution to TOM Government (2,000,000) (3,797,777)

Net cash flow from returns on investments and servicing of finance

(1,958,953) (3,658,166)

Capital expenditure Payments to acquire fixed assets (550,626) (1,969,071) Receipts from sales of fixed assets 81,194 26,925

Net cash flow from capital expenditure (469,432) (1,942,146)

Increase in cash 1,568,051 1,264,863

The notes on pages 17 to 27 form part of the financial statements.

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Notes (forming part of the financial statements for the 52 weeks ended 30 March 2014)

1 Accounting policies

a) Basis of accounting

These financial statements have been prepared under the historical cost convention, as modified by the revaluation of investments as at the balance sheet date and the revaluation of land and buildings as at 1 April 2012, and in accordance with United Kingdom Accounting Standards. They have been prepared in accordance with the Accounts and Audit Regulations 2013 made under the Audit Act 2006. They have also been prepared in accordance with the Isle of Man Statement of Recommended Practice 2007 on accounting for entities subject to the Audit Act 2006 ("the SORP"), to the extent applicable to the Post Office.

b) Turnover

Turnover has been accounted for on an accruals basis and has been recorded in the Profit and Loss Account. Turnover is the value of services provided and goods sold excluding VAT.

c) Expenses

Expenses are accounted for on an accruals basis. The general policy is that no provision is made for any charges which may be incurred in respect of stamps sold, but unused at the balance sheet date. However where specific circumstances allow the amount and type of stamps to be clearly identified and an estimate of the likely liability to be made, then a provision is made in accordance with FRS12.

d) Tangible fixed assets

Tangible fixed assets are stated at their net realisable value. For land and buildings, net realisable value is determined by qualified independent professional valuers every 5 years, with an interim valuation in year 3. Assets with short economic lives, such as motor vehicles, office equipment and machines, are included at historical cost less depreciation as an estimate for net realisable value.

Depreciation is not provided on freehold land, but is provided on other assets based on cost or revalued amounts in equal annual instalments over the estimated useful lives of the assets. The estimated useful lives are as follows:

Buildings - Freehold (based on the estimated useful remaining life)

10 to 40 years

- Leasehold

over period of lease

Motor vehicles, according to type 5 years

Office equipment and machines Letter boxes 5 to 30 years

- Other postal equipment 5 to 10 years Office furniture and equipment 5 to 10 years

- Office machines 5 to 10 years - Safes in sub-offices 20 years

Computers 3 years

19


Notes (continued) (forming part of the financial statements for the 52 weeks ended 30 March 2014)

1 Accounting policies (continued)

e) Investment in associates

Investment in associates comprises investments where the Post Office has significant influence over that investee's operations. Significant influence is presumed to occur when the Post Office invests in more than 20% of the issued share capital of an investee, in the absence of other circumstances. Except where otherwise explained in these statements, the Post Office's share of profits or losses of associates is included in the Profit and Loss Account and its interest in their net assets is included in the Balance Sheet.

Stocks

Commemorative stamp costs are fully written off in the year of issue. Other stock is stated at the lower of cost and net realisable value.

g) Operating leases

Operating lease payments are charged directly to the Profit and Loss Account on a straight line basis over the term of the lease.

h) Foreign exchange

Transactions in foreign currencies are translated at the rate of exchange ruling when the transaction occurs. Monetary assets and liabilities in foreign currencies are translated at the rate of exchange ruling at the balance sheet date. Differences on exchange are taken to the Profit and Loss Account.

i) Reserves

The reserves are managed by agreement of Treasury under Section 6(1) of the Post Office Act 1993.

j) Pension costs

The Isle of Man Post Office operates a defined benefit pension scheme. In accordance with Financial Reporting Standard 17 "Retirement benefits" (as revised), the full service cost for the period, adjusted for any changes to the scheme, is charged to the Profit and Loss Account. A charge equal to the expected increase in the present value of the scheme liabilities as a result of the scheme liabilities being one year closer to settlement and a credit reflecting the long-term expected return on assets based on the market value of the scheme assets at the beginning of the period, is included in the Profit and Loss Account.

The Balance Sheet records as an asset or liability (as appropriate) the difference between the market value of the scheme assets and the present value of the accrued scheme liabilities, net of deferred tax. Accrued scheme liabilities are determined using the projected unit method. The difference between the expected return on assets and that actually achieved in the period is recognised in the statement of total recognised gains and losses.

k) Heritage assets

Heritage assets are not recorded at value in the Balance sheet, unless the Board believes that there is sufficient ongoing business benefit accruing to justify the cost of revaluing the assets.

20



2 Total (loss)/profit for the period

Total (loss)/profit for the period is arrived at after charging/crediting:


£


£

Auditors' remuneration 9,080 8,832 Depreciation 791,887 781,564 Impairment charge on fixed assets - 68,063 Pension costs (note 9) 916,859 843,547 Irrecoverable VAT 312,615 292,159 Gain on disposal of fixed assets (81,194) (22,122) Rentals payable under operating leases (note 1g) 114,753 160,633 Community support payment 381,618 391,443

3 Fixed assets

Land Buildings Motor

Vehicles

Office Equipment

& Machines Total

£ £ £ £ £ Cost or valuation At 31 March 2013 2,025,000 5,779,986 1,413,464 8,004,761 17,223,211 Additions - 117,239 271,884 199,610 588,733

Disposals - (138,775) (216,453) (1,086,652) (1,441,880)

At 30 March 2014 2,025,000 5,758,450 1,468,895 7,117,719 16,370,064

Accumulated depreciation At 31 March 2013 (559,397) (777,399) (6,119,230) (7,456,026) Charge for the period (196,772) (232,303) (362,812) (791,887)

Disposal 138,777 216,450 1,086,652 1,441,879

At 30 March 2014 (617,392) (793,252) (5,395,390) (6,806,034)

Net book value At 30 March 2014 2,025,000 5,141,058 675,643 1,722,329 9,564,030

At 31 March 2013 2,025,000 5,220,589 636,065 1,885,531 9,767,185

21



3 Fixed Assets (continued)

The freehold land and properties at Spring Valley Industrial Estate and at Regent Street were revalued on 1 April 2012, by qualified independent professional valuers Black Grace Cowley, in accordance with Royal Institute of Chartered Surveyors Appraisal and Valuation Standards. The properties were valued on the basis of existing use value. The surpluses that arose were credited to the Fixed Asset Reserve. Impairments in value have been charged to the Fixed Asset Reserve where they reflect the reversal of a previous revaluation gain, where no such gain exists, impairment losses have been charged to the Profit and Loss Account. Depreciation is being charged based upon the revalued amounts and revised estimated useful economic life of the buildings.

4 Investment in associates

As part of the acquisition of property at Barleyfields, Isle of Man Business Park, the Post Office acquired 40 shares of Isle of Man Business Park (No4) Management Company Limited, a company incorporated in the Isle of Man, representing 40% of the issued capital of the company. The principal activity of the company is the management of the shared element of the property acquired. The Board has taken the decision not to include the Post Office's share of profits or losses of associates or its interest in their net assets in these accounts, as in its view the results would be immaterial.

5 Debtors

2014 £

2013 £

Trade debtors 1,385,749 1,003,389 Other debtors 1,371,809 1,265,568 Prepayments and accrued income 1,022,394 269,170

3,779,952 2,538,127

6 Other creditors

2014 2013 £ £

Trade creditors and accruals 1,893,440 1,846,751 Agency creditors 438,909 760,796 VAT 100,861 58,720 Philatelic subscriber balances 269,756 267,448

2,702,966 2,933,715

22



7 Amounts due from and amounts due to Isle of Man Government

2014 2013

Due from Isle of Man Government comprises: Treasury Department 115,079 75,009

Due to Isle of Man Government comprises: Agency creditors 3,651,389 767,189 Treasury Department 2,000,000 2,000,000

5,651,389 2,767,189

8 Reserves

Fixed asset

reserve £

Revenue and general

reserve £

Development reserve Total

Balance brought forward 9,767,185 1,000,000 3,567,764 14,334,949 Profit available for appropriation 1,970,324 1,970,324 Contribution to Treasury (2,000,000) (2,000,000) Actuarial gain on pension scheme 3,272,684 3,272,684 Fixed asset reserve transfer (203,155) 203,155 Transfer to development reserve (3,446,163) 3,446,163

Balance carried forward 9,564,030 1,000,000 7,013,927 17,577,957

Revenue and general reserve

The reserve was established for the purpose of providing working capital for the funding of the day to day activities of the Isle of Man Post Office.

Development reserve

The reserve was established to help finance major capital expenditure. Each year a transfer is made to or from this reserve in order to maintain the Revenue and general reserve at £1,000,000.

Fixed asset reserve

Each year a transfer is made to the fixed asset reserve to ensure that its value equals the net book value of fixed assets at the period end.

23



9 Pension scheme

The Isle of Man Post Office operates a funded defined benefit pension scheme, The Isle of Man Post Office Superannuation Scheme ("the Scheme"), providing benefits based on final pensionable pay. Contributions to the scheme are determined by a firm of independent actuaries employed by the Trustees. The actuarial assumptions used to calculate scheme liabilities under FRS 17 are as follows:

2014 2013

Discount rate 4.50% 4.70% Salary increase rate 2.75 %,3.25 %,3.75 %* 4.20%,4.70%,5.20%** Rate of revaluation in deferment 2.25% 2.50% Pension increase rate 2.05% 2.15% Expected return on scheme assets 6.00% 6.30% RPI Price inflation rate 3.45% 3.70% CPI Price inflation rate 2.25% 2.50%

*2.75% pa for the first two years (from 2015), increasing to 3.25%pa for the next five years, followed by 3.75% pa thereafter. Figures as at 30 March 2014 allow for actual salary information at 1' April 2013 and an assumed increase in Superannuable pay of 2% at 1" April 2014

4.2% pa for the first four years (from 2014), increasing to 4.7%pa for the next five years, followed by 5.2% pa thereafter. Figures at 31 March 2013 allow for actual salary information at 1' April 2012 and an assumed increase in Superannuable pay of 3c• at 1 April 2013

Assumptions regarding life expectancy of members are based on published statistics and mortality tables. The life expectancies at age 60 utilised in the actuarial assumptions are as follows:

Men Women

30 March 31 March 30 March 31 March

2014 2013 2014 2013 Current pensioners aged 61

25.5 25.5 27.9 28.2

Future pensioners now aged 41

27.1 27.6 29.5 30.1

The expected return on scheme assets is determined as the best estimate of returns expected over the period from dividends, interest and capital gains, taking into account the expected returns for individual asset categories. The assumptions used by the actuary are the best estimates chosen from a range of possible actuarial assumptions which, due to the timescale covered, may not necessarily be borne out in practice.

Amounts recognised in the Balance Sheet The fair value of the Scheme's assets, which are not intended to be realised in the short term and may be subject to significant change before they are realised, and the present value of the Scheme's liabilities, which are derived from cash flow projections over long periods and thus inherently uncertain, were as follows:

2014 £'000

2013 £'000

Equities 41,808 40,274 Property 8,763 8,305 Bonds 10,119 10,495 Other* 3,496 3,432

Fair value of scheme assets 64,186 62,506 Present value of funded liabilities (66,127) (67,740)

Net pension liability (1,941) (5,234)

*'Other' assets at 31 March 2014 comprised Diversified Growth Funds of £3,373,500 (£3,334,000 at 31 March 2013) and cash and net current assets of £122,800 (£98,500 at 31 March 2013)

24



9 Pension scheme (continued)

The scheme does not invest in the sponsor's own financial instruments, including property or other assets owned by the sponsor.

2014 2013 Changes in present value of the funded liabilities £'000 f'000

At beginning of period 67,740 59,831 Current service cost 1,601 1,330 Employee contributions 479 461 Interest cost 3,221 3,089 Actuarial (losses) / gains (4,430) 4,994 Past service cost Benefits paid (2,484) (1,965)

At end of period 66,127 67,740

Changes in fair value of the scheme assets

At beginning of period 62,506 55,728 Expected return on assets 3,905 3,575 Sponsor contributions 937 905 Employee contributions 479 460 Actuarial (losses) / gains (1,148) 3,803 Benefits paid (2,484) (1,965)

At end of period 64,195 62,506

Amounts recognised in the profit and loss account

Current service cost 1,601 1,330 Interest on scheme liabilities 3,221 3,089 Expected return on scheme assets (3,905) (3,575)

Total expense 917 844

Actual return on scheme assets 2,747 7,379

Effect of FRS17 on profit

Total income as reported 27,177 28,611

Total expenditure as reported (25,934) (26,363) Less FRS17 charge 664 425

Restated expenditure pre FRS17 (25,270) (25,938)

Restated operating profit pre FRS17 1,907 2,673

Interest earned 728 595 Less FRS17 adjustment (684) (486)

Restated interest income pre FRS17 44 109

Restated profit available for appropriation pre FRS17 1,951 2,782

25



9 Pension scheme (continued)

The sponsor's best estimate of contributions to be paid in respect of the Scheme during the 52 weeks ended 31 March 2015 is £1,390,000 (including £470,000 of member contributions).

Amounts recognised in the statement of total recognised gains and 2014 2013 losses £'000 £'000

Actual return less expected return on scheme assets (1,157) 3,803 Experience gains and losses arising on scheme liabilities 896 (24) Change in assumptions underlying present value of scheme liabilities 3,534 (4,970)

Net actuarial gains / (losses) recognised in the period 3,273 (1,191)

Cumulative net actuarial gains/(losses) recognised in the statement 2014 2013 of total recognised gains and losses £'000 £'000

At beginning of period 532 1,723 Actuarial gain / (loss) on pension scheme 3,273 (1,191)

At end of period 3,805 532

Cumulative net actuarial gains/(losses) have been determined as the amounts recognised in the statement of total recognised gains and losses up to the period ended 31 March 2004, based on FRS17 applicable during those years. The revised FRS17 has been applied for periods ended on or after 29 March 2009.

Historical information 2014

£'000 2013

£'000 2012

£'000 2011

£'000 2010

£'000

Present value of scheme liabilities

(66,127) (67,740) (59,831) (52,606) (53,286)

Fair value of scheme assets 64,186 62,506 55,727 52,462 49,369

Net scheme deficit (1,941) (5,234) (4,104) (144) (3,917)

Experience adjustments on scheme liabilities

896 (24) 270 392 808

% of present value of funded obligations

1.4 (0.0) 0.5 0.7 1.5

Experience adjustments on scheme assets

(1,157) 3,803 477 329 10,806

% of scheme's assets 1.8 6.1 0.9 0.6 21.9

Total recognised in STRGL 3,273 (1,191) (3,660) 3,772 (3,433)

% of present value of funded obligations

4.9 (1.8) (6.1) 7.2 (6.4)

26



10 Capital commitments

a) Capital commitments at the end of the financial period for which no provision has been made, are as follows:

2014 2013

£ £

Authorised but not yet contracted for

Contracted for but not yet provided 31,449

b) Annual commitments under non-cancellable operating leases are as follows:

2014 2013

Operating leases which expire:

Land and Buildings

£ Other

£

Land and Buildings

£ Other

£

Within one year 92,500 8,384 133,828 8,384 In the second to fifth years inclusive 239,792 131,667 Over five years

332,292 8,384 265,495 8,384

11 Reconciliation of operating profit to net cash flow from operating activities


£


£

Operating profit 1,242,178 2,247,883 Depreciation charges 791,887 781,564 Impairment charge 68,063 Profit on sale of tangible fixed assets (81,194) (22,122) Defined benefit scheme - current service cost in excess of contributions 663,652 425,131 Decrease/(Increase) in stocks 43,433 (7,230) (Increase)/Decrease in debtors (1,238,798) 1,097,198 Increase/(Decrease) in amounts owed to Isle of Man 2,844,132 (355,637) Government (Decrease)/Increase in creditors (268,854) 100,599

Net cash flow from operating activities 3,996,436 4,335,449

27



12 Analysis of changes in cash (representing net funds) As at

30 March 2014 Cash flows

As at 31 March 2013

£ £ £

Cash at hank and in hand 11,751,100 1,549,856 10,201,244 Short term deposit 2,545,887 18,195 2,527,692

14,296,987 1,568,051 12,728,936

13 Salaries

Remuneration of members, officers (including non-corporate sub-postmasters) and employees of the Post Office is payable within the following bands:

2014 2013

Number Number

£50,000 - £74,999 12 8 :£75,000 - £99,999 2 3 £100,000 - £124,999 1 1

14 Related party transactions

The Isle of Man Post Office is required to disclose material transactions with related parties, that is bodies or individuals that have the potential to control or influence it, or to be controlled or influenced by the same. Disclosure of these transactions allows the readers to assess the extent to which the Post Office might have been constrained in its ability to operate independently or might have secured the ability to limit another party's ability to bargain freely with it.

The Board considers that the main related parties are the Isle of Man Post Office Superannuation Scheme ("the Scheme"), Members of the Board and Senior Management of the Isle of Man Post Office. In accordance with FRS8 3(c) as the Isle of Man Post Office is wholly owned by the Isle of Man Government and is included in the consolidated Government accounts, transactions between the Isle of Man Post Office and its beneficial owner, the Isle of Man Government are not disclosed in this note (non trade debtor and creditor balances at 30 March 2014 are disclosed in note 7).

The Isle of Man Post Office pays pensions and other certain costs on behalf of the Scheme as well as making contributions to the Scheme. These balances are settled by recharges between the Scheme and the Post Office during the year

2013/14 £

2012/13 £

Pensions paid on behalf of the Scheme 1,565,268 1,437,914 Net recharges made to the Scheme 295,539 344,580

30 March 2014 31 March 2013

Balance owed by the Scheme (78,320) (23,504)

No other material transactions or balances were identified for the financial year (2012/13: none).

The Isle of Man Post Office has an interest in a company and the relevant disclosure can be found in note 4.

28



15 Contingent Liabilities

The Post Office may have contingent liabilities to pay recharges for policy excesses in respect of insurance arranged on its behalf by the Department of Treasury. These policy excesses may be up to £140,000 although, to the best of its knowledge as at the date of this report, the Board believes that should a recharge be made, the total of these liabilities would be significantly below this figure.

16. Heritage Assets

The Post Office owns a number of heritage assets that are not included in the balance sheet position at 30 March 2014. The assets comprise:-

1. A collection of paintings, representing the original artwork for stamps produced during the 1970s and 1980s.

2. A memorial World War 1 plaque designed by Archibald Knox 3. A memorial World War 2 plaque

These assets were purchased historically. It is the view of the Board that the costs incurred to reliably value these assets on an ongoing basis, even such values could be obtained, would be disproportionate to any additional benefits derived by the Post Office and users of the accounts.

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Isle of Man Post Office - Parliament of the Isle of Man

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