International Distribution Services : Annual Report and Financial Statements 2023-24

Annual Report and

Financial Statements 2023-24

International

Distribution

Services plc

Contents

2023-24 Group Financial Performance

Strategic Report

1. Group at a glance
2. Chair's statement

1. Chief Executive's review

1. Our marketplace

1. Our business model

1. Our strategy

1. Measuring our performance

1. Our stakeholders

1. Section 172 statement

1. ESG review

1. TCFD statement

1. Risk management and our principal risks and uncertainties

1. Viability statement

1. Financial review

1. Non-financialand sustainability information statement

Corporate Governance

1. Chair's introduction

1. Board of Directors

1. Board at a glance
2. Governance framework
3. Division of responsibilities
4. Board activities

1. Culture
2. Shareholder and workforce engagement
3. Board evaluation
4. Nomination Committee Report

1. Audit and Risk Committee Report

1. Environmental, Social and Governance Committee Report

1. Directors' Remuneration Report

1. Directors' Report

1. Statement of Directors' Responsibilities

Reported revenue1	Reported basic earnings per share1
£12,679m	5.6p
2022-23: £12,044m	2022-23: (91.3)p loss per share
Reported operating profit1	Adjusted basic loss per share2
£26m	(14.6)p
2022-23: £(742)m loss	2022-23: (20.5)p loss per share
Adjusted operating loss2	FY 2023-24 dividend
£(28)m	2p
2022-23: £(71)m loss	2022-23: Nil
Adjusted operating loss margin2	Net debt2
(0.2)%	£ 1,716m
2022-23: (0.6)%	2022-23: £1,500m

Financial Statements

1. Independent auditor's report

1. Consolidated income statement
2. Consolidated statement of comprehensive income
3. Consolidated balance sheet

1. Consolidated statement of changes in equity
2. Consolidated statement of cash flows

1. Notes to the consolidated financial statements

1. International Distribution Services plc
2. • Parent Company financial statements

Additional Information

1. Shareholder information
2. Glossary of alternative performance measures

1. Forward-lookingstatements

Segmental revenue split3

	2023-24	2022-23
Royal Mail	£7,834m	£7,411m
GLS	£4,865m	£4,650m

38% 62%

Group reported operating profit split

	2023-24	2022-23
Royal Mail	£(254)m	£(1,039)m
GLS	£280m	£297m

£280m

£(254)m

1. Reported results are prepared in accordance with UK adopted International Financial Reporting Standards (IFRS).
2. The Group's performance is explained through the use of alternative performance measures (APMs) that are not defined under IFRS. A full list of the Group's APMs are set out on pages 238 to 243 and reconciliations to the closest measure prescribed under IFRS.
3. Includes intragroup revenue of £20m split between Royal Mail (£1m), Parcelforce Worldwide (£16m) and GLS (£3m). (2022-23: intragroup revenue was £17m split between Parcelforce Worldwide (£14m) and GLS (£3m)).

Group at a Glance

Strategic Report

Our purpose

To connect customers, companies and countries.

Who we are

International Distribution Services plc (IDS plc or IDS) is a holding company,

which includes our UK-based operation, Royal Mail and Parcelforce Worldwide (Royal Mail), and our international operation, GLS. IDS aims to be a modern logistics company, delivering sustainable growth and value for shareholders.

What we do

Our businesses provide postal and delivery services across their extensive networks. Royal Mail delivers letters and parcels to around 32 million addresses across the UK. GLS is one of the largest parcel services providers in Europe, with a growing presence in North America.

Our ambition

To build a more balanced and diverse international business.

Our values

Our values, which shape our culture, underpin everything we do. We focus on our customers and on providing reliable and convenient value-for-money services. We want our people to be proud to work for our businesses.

Royal Mail

• Be positive - about what we can achieve.
• Be brilliant - for our customers.
• Be part of it - each one of us is responsible.

GLS

• Reliability
• Security
• Transparency
• Flexibility
• Sustainability

Our strategic priorities

During the year we have focused on a number of strategic initiatives to improve the customer experience and drive growth including:

• Progressing the transformation of Royal Mail and improving quality of service and productivity.
• Growing our out-of-home networks in both Royal Mail and GLS.
• Continuing to upgrade GLS' network and expand its customer offering.

→ Read more on pages 16 to 19

Our approach to sustainability

Demonstrating leadership across the broad environmental, social and governance (ESG) agenda is the right thing to do. It is also essential if we are to achieve competitive advantage and create value for our stakeholders.

We aim to run our business in a responsible and sustainable way and be an integral, trusted and valued part of the communities we operate in.

→ Read more on pages 27 to 40

Additional Information Financial Statements Corporate Governance

International Distribution Services plc Annual Report 2023-24	1

Chair's Statement

"Despite a challenging macroeconomic backdrop, the Group delivered a good performance."

Keith Williams

Non-Executive Chair

The past year has been one of transition, but the Group has made good progress. Following a long period of industrial action we have stabilised Royal Mail. This has allowed us to improve the businesses' operational performance and make good progress on its modernisation agenda. At GLS, whilst both short-term macroeconomic headwinds and strategic investments impacted profitability, the business delivered good volume and revenue growth in almost all markets, and continued delivery of its strategic agenda.

We are a people-driven business and our colleagues across the Group have contributed to our performance and the progress we have made. On behalf of the Board, I would like to thank them for their continued hard work and dedication.

At the time of writing, the Board has received a revised possible offer of 370 pence per IDS share from EP Group for the entire issued share capital of IDS. The proposal follows significant negotiation including a number of earlier proposals from EP Group (the first of which was made on 9 April 2024 at a price of 320 pence per share in cash).

Both Royal Mail and GLS perform critical functions in the markets where they operate, and the Board is particularly mindful of Royal Mail's unique heritage and responsibilities as the designated Universal Service Provider in the United Kingdom and a key part of national infrastructure. In assessing the proposal, the Board has also been very mindful of the impact on Royal Mail and GLS and their respective stakeholders and employees, as well as broader public interest factors. The Board has sought, and EP Group has agreed to offer as part of the proposal, a set of contractual undertakings

to protect key public interest factors and recognise Royal Mail's status as a key part of national infrastructure.

The Board is minded to recommend the revised offer of 370 pence to IDS shareholders, should an offer be made at that level, subject to satisfactory resolution of the final terms and arrangements. However, there can be no certainty that any offer will be made.

The plans now being executed under the leadership of Martin Seidenberg since he became Chief Executive Officer of IDS in August 2023 are delivering clear operational and financial improvements. Royal Mail has crossed an inflection point and GLS is continuing to build on its proven track record of delivering top line growth, strong margins and good cash flow generation, enabled by its flexible operating model, broad customer base and geographic diversity.

Over the past eight months, Royal Mail's trajectory has seen a fundamental step change, with the operational turnaround accelerating at pace. GLS has consistently been one of the most profitable players within the parcel delivery segment with its asset light business model, broad customer base and geographic diversity enabling a resilient performance in a challenging market. It continues to invest to support significant network expansion and to drive innovation, launching new digital services and transforming the last mile.

Universal Service reform

Royal Mail continues to make progress on its transformation and the business is now back to growth. However, urgent reform of the Universal Service is essential to ensure longer-term financial sustainability.

Royal Mail has developed a clear and detailed proposal for reform of the Universal Service based on extensive modelling and analysis of customer needs. These changes should be enacted quickly by Ofcom through changes to postal regulations and conditions and do not require legislation change through Parliament. We urge Ofcom to act without delay. Royal Mail's proposal would deliver

a more efficient, more reliable and more financially sustainable service. It would reduce the net cost of the Universal Service by up to £300 million per year, whilst protecting what matters most to customers resulting in a better, sustainable outcome for our customers, our people, and our shareholders. Once reform is agreed, deployment would take 18-24 months. However, at the current time there is no clarity on the form or timing of any change to the Universal Service. The longer the wait for change to be agreed the smaller the reduction in costs will be, given continued falling letter volumes, against an ongoing need for investment and transformation in Royal Mail.

2	International Distribution Services plc Annual Report 2023-24

Royal Mail is also calling on Ofcom to modernise the Universal Service, for example by adding tracking to Universal Service parcels to reflect customer demand.

The proposal we submitted to Ofcom in April 2024 is available at www.internationaldistributionservices.com/en/about-us/regulation/the-future-of-letter-deliveries.

Financial performance1,2,3

Despite a challenging macroeconomic backdrop, the Group delivered a robust performance. Group revenue grew by £635 million year-on-year to £12,679 million, with revenue and parcel volume growth in both businesses. Group reported operating profit was £26 million (2022-23: £742 million loss), due to a significant reduction in the loss at Royal Mail as the prior year included an impairment charge of £539 million on the carrying value of Royal Mail. Adjusted operating loss was £28 million

(2022-23: £71 million loss), driven by revenue growth and reduced losses in Royal Mail. Group adjusted basic loss per share was

14.6 pence (2022-23: 20.5 pence loss per share). On a reported basis, Group earnings per share was 5.6 pence (2022-23: 91.3 pence loss per share).

Sustainability

Our businesses made good progress in their respective decarbonisation strategies, although emissions increased by 2% compared to the prior year, mainly due to volume growth in GLS. On a per revenue basis, CO2e emissions fell by 5%. In July 2023, Royal Mail reached the milestone of 5,000 electric vans across its delivery and collection fleet and operates the largest electric vehicle (EV) delivery fleet in the country.4 GLS is also continuing to expand its low- and zero-emission fleet, which grew by around 48% year-on-year, adding more e-vans, light vehicles and alternative-fuel vehicles to its delivery network.

Both Royal Mail and GLS are deploying hydrotreated vegetable oil (HVO) biofuel, which has the potential to reduce emissions by up to 90% compared to diesel. In Germany, our first hydrogen truck is now in operation.

In September 2023, we announced that Royal Mail's Net-Zero and near-term targets had been validated by the Science Based Targets initiative (SBTi) and in December 2023,

GLS committed to set Net-Zero targets for SBTi validation.5 We have also continued to implement the Task Force on Climate-related Financial Disclosure recommendations.

Capital allocation and dividend

The maintenance of a conservative balance sheet has always been at the heart of the Group's capital allocation policy and the Board considers the Group's net debt position as robust (pre-IFRS 16) at £328 million as at 31 March 2024 (£181 million at 26 March 2023, £142 million at 24 September 2023).

As previously indicated at the Group's half year results, the Board has proposed a final dividend payment of 2 pence per share in respect of 2023-24, funded by GLS. This final dividend payment is subject to shareholders approval at the Annual General Meeting scheduled to take place on 25 September 2024. The dividend will be paid on

30 September 2024 to shareholders on the register at 23 August 2024. The Board is also proposing a special dividend of 8 pence per share, conditional upon completion of the transaction with EP Group.

The Group had available liquidity of around £2.1 billion at the end of March 2024, including £927 million of cash and cash equivalents (excluding £47 million GLS client cash), £216 million of current asset investments, along with undrawn bank syndicate loan facility of £925 million.

Board changes

During the year we introduced a new management structure and on 20 July 2023 Martin Seidenberg was appointed to the newly created role of Group Chief Executive Officer to lead the Group and set its strategic direction. Martin joined GLS in 2015 as CEO of GLS Germany and was subsequently appointed CEO of GLS in June 2020. He joined the Board in April 2021. He has extensive international logistics experience and proven track record of delivering change and growth.

On 18 January 2024 Michael Snape joined the Board as Group Chief Financial Officer (CFO) and Executive Director with immediate effect. Michael was previously CFO of Boots, No7 Beauty Company and International for Walgreens Boots Alliance. Prior to Boots Michael was International CFO for Tesco, responsible for its operations outside the UK and Ireland. Michael brings extensive turnaround experience and excellent financial leadership.

Michael succeeded Mick Jeavons who stepped down as Group CFO and Executive Director on 18 January 2024. During his 30-year career with the Group Mick held various senior roles and his counsel, knowledge and experience have been invaluable. On behalf of the Board, I would like to thank him for his outstanding contribution through some turbulent times and wish him every success for the future.

In June 2023 Ingrid Ebner joined the Board as a Non-Executive Director and member of the Nomination Committee.

Summary

The Group has made good progress this year and delivered operational and financial improvements, against a difficult macroenvironment. Royal Mail has crossed an inflection point, although headwinds remain. GLS delivered revenue growth and adjusted operating profit at the upper end of guidance and made further progress on delivering its strategic priorities. However, there is more to do, with further investment required at GLS and the ongoing transformation of Royal Mail.

Keith Williams

Non-Executive Chair

24 May 2024

1. Reported results are prepared in accordance with UK adopted International Financial Reporting Standards (IFRS).
2. The 52 week 2023-24 results are derived by removing the 53rd week revenue and incremental costs in relation to Royal Mail, see the Group's APMs on page 238 to 243 for further details on this adjustment. Percentage changes are on a 52 week basis. The GLS financial year is 12 months to 31 March 2023 and 2024, so no adjustment is made for GLS' results. The 52 week results are in line with how the Chief Operating Decision Maker as defined by IFRS 8 reviews performance.
3. The Group's performance is explained through the use of alternative performance measures (APMs) that are not defined under IFRS. A full list of the Group's APMs are set out on pages 238 to 243 and reconciliations to the closest measure prescribed under IFRS.
4. Based on internal analysis of publicly available competitor fleet data.
5. In the Group's full year results announcement published on 24 May 2024 this sentence incorrectly read 'In December 2023, GLS submitted its Net-Zero targets for SBTi validation'.

Strategic Report

Additional Information Financial Statements Corporate Governance

International Distribution Services plc Annual Report 2023-24	3

Chief Executive's Review

"Royal Mail's operational performance has improved and its modernisation agenda has progressed. GLS delivered a good financial performance and continued to deliver its strategy."

Martin Seidenberg

Group Chief Executive Officer

→ Further detail on our strategic progress is included on pages 16 and 19.

Operational performance

Volume and revenue1

				Change
		52 weeks		52 wks 2024
		March 2024		ex. 53rd wk
		ex. 53rd		in Royal Mail
	53 weeks	week in	52 weeks	vs 52 wks
Revenue (£m)	March 2024	Royal Mail	March 2023	20231,2
Group3	12,679	12,539	12,044	4.1%
Royal Mail	7,834	7,694	7,411	3.8%
Total Parcels	4,108	4,040	3,910	3.3%
Domestic Parcels
(excluding
international)4	3,382	3,327	3,226	3.1%
International Parcels5	726	713	684	4.2%
Letters	3,726	3,654	3,501	4.4%
GLS	4,865	4,865	4,650	4.6%

				Change
		52 weeks		52 wks 2024
		March 2024		ex. 53rd wk
		ex. 53rd		in Royal Mail
	53 weeks	week in	52 weeks	vs 52 wks
Volume (m units)	March 2024	Royal Mail	March 2023	20231,2
Royal Mail
Total Parcels	1,295	1,273	1,205	6%
Domestic Parcels
(excluding
international)4	1,120	1,101	1,064	3%
International Parcels5	175	172	141	22%
Addressed letters
(excluding elections)	6,736	6,617	7,280	(9)%
GLS	905	905	862	5%

1. Reported results are prepared in accordance with UK adopted International Financial Reporting Standards (IFRS). The 52 week 2023-24 results are derived by removing the 53rd week revenue and incremental costs in relation to Royal Mail, see the Group's APMs on page 238 to 243 for further details on this adjustment. Percentage changes are on a 52 week basis. The GLS financial year is
   12 months to 31 March 2023 and 2024, so no adjustment is made for GLS' results. The 52 week results are in line with how the Chief Operating Decision Maker as defined by IFRS 8 reviews performance.
2. All percentage changes reflect the movement between figures as presented, unless otherwise stated.
3. Royal Mail and GLS revenue does not equal Group revenue due to the elimination of intragroup trading.
4. Domestic Parcels excludes import and export for both Royal Mail and Parcelforce Worldwide.
5. International includes import and export for Royal Mail and Parcelforce Worldwide.

4	International Distribution Services plc Annual Report 2023-24

CEO Q&A

1. Based on average gCO2e emissions per parcel delivered by UK parcel operators, as published by Citizens Advice 2023 Parcels League Table.

Q You have now been in your role for ten months - have your thoughts about the business changed?

No - if anything the last ten months have reinforced my belief in the strength of IDS. I firmly believe that by working together to meet customers' evolving demands, we will turn around Royal Mail and continue to grow GLS. While there are challenges ahead and much work to do, we have two companies with great potential and plenty of opportunities to transform and grow. Royal Mail has unparalleled scale and reach in the UK, a great brand and strong customer relationships. GLS is a state-of-the art international parcel logistics network. It also has a strong brand and a proven track record of delivering growth and innovative customer services. Delivering on our potential is an exciting challenge and, as evidenced by

our recent performance, we are heading in the right direction.

Q Has anything in particular stood out in recent months? I was particularly impressed by the level of energy and

engagement from our Royal Mail colleagues who worked tirelessly to ensure that practically all items posted before our last recommended posting dates were delivered in time for Christmas. This has served as a launchpad for a marked improvement in Royal Mail's trading and operational performance and I am very pleased that the momentum has been maintained. The roll out of our new out-of-home growth plan is also noteworthy. Focused on making our service more convenient, we have launched two significant partnerships that give customers more options to drop off and collect parcels.

Q Transformation and growth are clearly key priorities - are you focusing on anything else?

We must engage with our people more effectively. They underpin our success and are key to the delivery of a higher-quality more efficient customer service. Specifically in our Royal Mail business we need to address the legacy impact of last year's industrial dispute on our workforce's pride and find new ways to improve the overall employee experience. And as customer demand for more sustainable products and services continues to grow, we also need to drive our environmental initiatives to further reduce the impact of our operations and play our part in the transition to a low-carbon future. This is the right thing to do. It will also enhance our competitiveness and we have a strong platform to build on. Royal Mail is already the UK's greenest delivery operator.1

Strategic Report

Additional Information Financial Statements Corporate Governance

International Distribution Services plc Annual Report 2023-24	5

Chief Executive's Review continued

Royal Mail 2023-24 performance

Revenue1

£7,834m

2022-23: £7,411m

Reported operating loss1

£(254)m

2022-23: £(1,039)m loss

48% 52%

Adjusted operating loss2	Royal Mail parcel/letter revenue split %
£(348)m	Parcels	52%	53%
		2023-24	2022-23
2022-23: £(419)m loss
Letters	48%	47%

6	International Distribution Services plc Annual Report 2023-24

Strategic Report

Additional Information Financial Statements Corporate Governance

Royal Mail

In the following commentary all percentage changes are based on a comparison3 of 52 weeks March 2024, excluding the 53rd week in Royal Mail, and 52 weeks March 2023. Revenue increased 3.8%, reflecting growth in both parcel and letter revenue.

Domestic parcel volumes (ex. international) increased by 3%, with domestic parcel revenue up 3.1% year-on-year. We made good progress in winning back customers lost due to industrial action last year. Price increases were partially offset by negative mix. Growth was particularly strong in the second half, as we lapped 15 days of industrial action.

International parcel volumes, including import and export parcels for Royal Mail and Parcelforce Worldwide, showed strong growth of 22%, driven by strong import volumes. International parcel revenue grew by 4.2% year-on-year, reflecting higher import volumes at a lower average unit revenue.

Total letter revenue grew by 4.4% year-on-year, benefitting from price rises, necessary given the inflationary environment and costs of delivering the USO against the backdrop of declining letter volumes, and positive mix effects, partially offset by volume decline. Addressed letter volumes (excluding elections) fell by 9% year-on-year, reflecting the trend of long-term structural decline. Stamped letter revenue rose significantly, with a particularly strong performance over the Christmas period, which was heavily impacted by strike action in the prior year. Advertising mail volumes declined by 11%, a result of the macroenvironment, whilst business mail volumes remained relatively robust, with the decline in volume more than offset by price increases, leading to revenue growth of 7.2%.

Whilst quality of service improved, there is more to do. Across the year, the business delivered an average of 74.5% of First Class mail within one working day (Ofcom target 93%) and 92.4% of Second Class mail arrived within three working days (Ofcom target 98.5%).

Reported operating loss reduced to £254 million

(2022-23: £1,039 million loss) and adjusted operating loss reduced to

£348 million (2022-23: £419 million loss), broadly in line with expectations. The business was close to breakeven in H2 at the adjusted operating level, excluding voluntary redundancy charges.

In-year trading cash outflow was £246 million (2022-23: £306 million outflow). Gross capital expenditure decreased by £79 million to £176 million, due to a new cash management approach and prioritisation of investment projects.

→ Further detail on performance is included in the Financial Review.

1. Reported results are prepared in accordance with UK adopted International Financial Reporting Standards (IFRS).
2. The Group's performance is explained through the use of alternative performance measures (APMs) that are not defined under IFRS. A full list of the Group's APMs are set out on pages 238 to 243 and reconciliations to the closest measure prescribed under IFRS.
3. The 52 week 2023-24 results are derived by removing the 53rd week revenue and incremental costs in relation to Royal Mail, see the Group's APMs on page 238 to 243 for further details on this adjustment. Percentage changes are on a 52 week basis. The GLS financial year is 12 months to 31 March 2023 and 2024, so no adjustment is made for GLS' results. The 52 week results are in line with how the Chief Operating Decision Maker as defined by IFRS 8 reviews performance.

International Distribution Services plc Annual Report 2023-24	7

Chief Executive's Review continued

GLS 2023-24 performance

Revenue1

£4,865m

2022-23: £4,650m

Reported operating profit1

£280m

2022-23: £297m

42%

58%

Adjusted operating profit2	GLS B2C/B2B volume split %
£320m	B2C	58%	55%
		2023-24	2022-23
2022-23: £348m
B2B	42%	45%

8	International Distribution Services plc Annual Report 2023-24