Isle of Man Post Office - Report and accounts
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Isle of Man Post Office Report and accounts For the 52 weeks ended 30 March 2014
Isle of Man Post Office 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
Isle of Man Post Office
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
2Isle of Man Post Office
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,
3Isle of Man Post Office
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
4Isle of Man Post Office
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.
5Isle of Man Post Office
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
6Isle of Man Post Office
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
7Isle of Man Post Office
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.
8Isle of Man Post Office
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.
9Isle of Man Post Office
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
ISO 27001 & ISO 9001
IMS LRQA January 2014
Surveillance SV4
Audit of systems related to
superannuation scheme as part
Human Resources /
Crowe, Clark & Whitehill LLC of the annual audit of the March 2014
Finance
pension scheme, opinion to be
given to the trustees.
Level 1 PCIDSS re-
IMS I NCC Group , accreditation by self- October 2013
! certification
Finance KPMG Audit LLC Annual Statutory Audit May 2013
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
Improved Staff awareness of Fraud and AML Risks with updated face to
face training in the Counters division including details of document
AML/Fraud awareness and training 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.
10Isle of Man Post Office
Staff awareness through training and improved security of operations with
Review of updated CAA and RM list
regard to new CAA & Royal Mail rules regarding the carriage of
of restricted goods
dangerous & prohibited goods.
Enhanced registration process to include disclosure of any changes of
Management of PO Boxes 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
Website & Process Improvements
registers and process maps.
Outsourcing of IT platform to Manx Telecom Tier 3 Data Centre. PCI
DSS and ISO 27001 & 9001 accredited.
IT processes and systems Introduction of independent ICT systems and governance.
Improved cable management within internal data centre.
Adoption of BS7858:2006 (Security Screening of Individuals in a Security
Security screening
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
Improvement Details of Improvement
Review environmental practices documentation and make changes as
Environmental Policy Review
appropriate.
Review of ISO documentation and processes from ISO 27001:2005 to the
Review of ISO Documentation
latest release - ISO 27001:2013.
Build ICT staff knowledge to enhance risk management and widen skill
bases.
In-house training 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.
Enhancements to customer data
New CRM System to be evaluated.
management
Continue documenting Marketing processes and establish Marketing role
Process Planning
in the BCP Plan.
Project Management 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
11Isle of Man Post Office
• 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
12Isle of Man Post Office
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.
13Report 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
14Isle of Man Post Office
Profit and Loss Account
for the 52 weeks ended 30 March 2014
Note 52 weeks ended 52 weeks ended
30 March 2014 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.
15Isle of Man Post Office
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 3,243,008 (348,282)
period
Note of Historical Cost Profits and Losses
for the 52 weeks ended 30 March 2014
52 weeks ended 52 weeks ended
30 March 2014 31 March 2013
£ £
Reported profit available for appropriation 1,970,324 2,842,571
Difference between historical cost depreciation
charge and the actual depreciation charge for the
period calculated on the revalued amount 99,280 91,816
Historical cost profit available for appropriation 2,069,604 2,934,387
Historical cost profit for the period retained
after contribution to the Isle of Man
Government Treasury 69,604 934,387
The notes on pages 19 to 29 form part of these financial statements.
16Isle of Man Post Office
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.
These financial statements were approved by the Board on 7.31sb 2o\ and were signed on their
behalf by:
Chairman Chief Executive Officer Finance Director
17Isle of Man Post Office
Cash Flow Statement
for the 52 weeks ended 30 March 2014
Note 52 weeks ended 52 weeks ended
30 March 2014 31 March 2013
£ £ £ £
Net cash flow from operating activities 11 3,996,436 4,335,449
Returns on investments and servicing of
finance
Interest received 41,047 139,611
Contribution to TOM Government (2,000,000) (3,797,777)
Net cash flow from returns on investments (1,958,953) (3,658,166)
and servicing of finance
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.
18Isle of Man Post Office
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
19Isle of Man Post Office
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.
20Isle of Man Post Office
Notes (continued)
(forming part of the financial statements for the 52 weeks ended 30 March 2014)
2 Total (loss)/profit for the period
Total (loss)/profit for the period is arrived at after charging/crediting:
52 weeks ended 52 weeks ended
30 March 2014 31 March 2013
£ £
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
Office
Motor Equipment
Land Buildings Vehicles & 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
21Isle of Man Post Office
Notes (continued)
(forming part of the financial statements for the 52 weeks ended 30 March 2014)
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
22Isle of Man Post Office
Notes (continued)
(forming part of the financial statements for the 52 weeks ended 30 March 2014)
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 Revenue
asset and general Development
reserve reserve 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.
23Isle of Man Post Office
Notes (continued)
(forming part of the financial statements for the 52 weeks ended 30 March 2014)
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 2013
£'000 £'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)
24Isle of Man Post Office
Notes (continued)
(forming part of the financial statements for the 52 weeks ended 30 March 2014)
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
25Isle of Man Post Office
Notes (continued)
(forming part of the financial statements for the 52 weeks ended 30 March 2014)
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.
2014 2013 2012 2011 2010
Historical information £'000 £'000 £'000 £'000 £'000
Present value of scheme (66,127) (67,740) (59,831) (52,606) (53,286)
liabilities
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 896 (24) 270 392 808
scheme liabilities
% of present value of funded 1.4 (0.0) 0.5 0.7 1.5
obligations
Experience adjustments on (1,157) 3,803 477 329 10,806
scheme assets
% 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 4.9 (1.8) (6.1) 7.2 (6.4)
obligations
26Isle of Man Post Office
Notes (continued)
(forming part of the financial statements for the 52 weeks ended 30 March 2014)
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
Land and Land and
Buildings Other Buildings Other
£ £ £ £
Operating leases which expire:
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
52 weeks ended 52 weeks ended
30 March 2014 31 March 2013
£ £
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
27Isle of Man Post Office
Notes (continued)
(forming part of the financial statements for the 52 weeks ended 30 March 2014)
12 Analysis of changes in cash (representing net funds)
As at Cash As at
30 March 2014 flows 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.
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