Annual Report 2017 Whistl Group Holdings Limited
Whistl Group Holdings Limited Annual report and consolidated financial statements for the year ended 31 December 2017
Registered number: 9779561 (England and Wales)
Contents
Strategic Report 2017 highlights Financial highlights Our Mission & Promise CEO Business Review CFO Financial Review
4 6 8
10 14 18 20 26
Risk Management
Corporate Responsibility and Our People
Governance
Financials Directors’ Report
30 31 33 34 35 36 36 37 38 39 59
Independent Auditor’s Report
Consolidated statement of comprehensive income Consolidated statement of financial position Company statement of financial position Consolidated statement of changes in equity Company statement of changes in equity Consolidated statement of cash flows
Company statement of cash flows
Notes to the consolidated financial statements
Directors and Advisers
3
2017 highlights
£ 602.98m Turnover up 1.9%
£ 16.25m Net Assets up 57.4%
£ 37.10m Cash at bank and in hand up 62.0%
£ 4.34m Capital Expenditure up 7.3%
£ 1.50m Dividend paid for the first time
ALL FIGURES ARE 2017 COMPARED TO 2016
4
2017 highlights | Whistl Annual Report 2017
Whistl is a delivery management company with activities in Downstream Access Mail, Doordrop Media, Parcels and Fulfilment, both in the UK and Internationally.
31 % growth in International business 10 % growth in Parcels
Opening of new
Super Depot in Bolton
Acquisition of
Prism DM signals move into E-commerce Fulfilment sector
Handling
3 in 10 of all letters sent in the UK
2017 highlights | Whistl Annual Report 2017
5
Financial highlights for the year ended 31 December 2017
2017 £’000
2016 £’000 591,713 (27,093)
602,984 (26,846)
Turnover Administrative expenses 1 Underlying operating profit 1 Underlying EBITDA 2 Net assets Cash at bank and in hand Net cash from operating activities Capital expenditure Dividends paid
10,536 11,609 16,248 37,103 19,857 4,335 1,500
11,838 13,289 10,324 22,903 11,770 4,039 -
1 Excludes exceptional items. 2 EBITDA represents earnings before interest, tax, depreciation, amortisation and exceptional items and is calculated as operating profit before exceptional items adjusted for fixed asset, impairment depreciation and amortisation charge for the year.
6 Financial highlights | Whistl Annual Report 2017
ENCOURAGING TRADING SAW REVENUE INCREASE BY £11.3M TO £603.0M (2016: £591.7M) INCLUDING STRONG GAINS IN THE GROWTH AREAS OF PARCELS AND INTERNATIONAL OF 10% AND 31% RESPECTIVELY, UNDERPINNED BY A ROBUST PERFORMANCE IN CORE DOWNSTREAM ACCESS.
THE GROUP IS IN A VERY STRONG FINANCIAL POSITION WITH NET ASSETS RISING FROM £10.3M TO £16.2M AND CASH RESERVES INCREASING TO £37.1M (2016: £22.9M) . CASH INFLOW FROM OPERATING ACTIVITIES GREW TO £19.9M (2016: £11.8M) .
OUR NEW PURPOSE BUILT SUPER DEPOT IN BOLTON WHICH OPENED IN JULY, CONTINUES OUR AMBITIOUS INVESTMENT PROGRAMME AND WE COMMENCED THE CONSTRUCTION OF A PARCEL SORTATION SYSTEM WHICH WILL BE COMMISSIONED IN 2018.
WE ACQUIRED THE FULFILMENT BUSINESS, PRISM DM TO GROW OUR PRESENCE IN THE E-COMMERCE MARKET AND BROADEN THE RANGE OF SERVICES WE CAN OFFER TO OUR CUSTOMERS.
OVERALL CAPITAL EXPENDITURE INCREASED 7% TO £4.3M ADDING GROWTH CAPACITY AND IMPROVING EFFICIENCY.
WE HAVE A SUBSTANTIAL, FULLY COMMITTED BANK FACILITY OF £65M THAT REMAINS UNUTILISED.
THE GROUP MARKED A SIGNIFICANT MILESTONE IN THE YEAR, ON THE 2ND ANNIVERSARY OF THE MANAGEMENT BUYOUT, BY DECLARING A DIVIDEND OF £1.5M (2016: NIL) .
Financial highlights | Whistl Annual Report 2017
7
Our Mission
TO GROW BY DOING A GREAT JOB, WITH CAN-DO PEOPLE WORKING EFFICIENTLY TO DELIVER EXCEPTIONAL SERVICE.
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Our Mission | Whistl Annual Report 2017
Our Promise
Quality first Reliability, dependability and a quality service – central to everything we do for you.
Easy to work with We work hard at making sure it’s easy for you to use us, to get hold of us and to get on with us. Thinking of you Before we think, speak or act, we put ourselves in your shoes and do what’s right for you and your business.
The human touch Expect happy and helpful, willing and able. Can-do is in our DNA. The right thing We’re open and honest, straight and clear – doing the right thing.
Living up to Our Promise
72 % 76 % 66 % 77 % 72 % 27 NPS
of customers agreed we provide a reliable, dependable quality service. of customers agreed it’s easy to use us and to reach us when they need to.
of customers agreed we see things from their perspective and do the right thing for their business.
of customers agreed we are friendly and helpful, and have a can-do attitude. of customers agreed we are straightforward, open and honest.
our NPS score across the business.
Source: Whistl Annual customer survey 2017
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Our Promise | Whistl Annual Report 2017
CEO Business Review
Nick Wells Chief Executive O¤cer
We reached the second anniversary of our management buyout of Whistl from PostNL and during the year we continued to invest in our business to become the leading delivery management company in the UK. Our business is built upon our core Downstream Access bulk mail o ering and we have a growing presence in doordrop media, parcels and international markets. We were pleased to conclude our acquisition of e-commerce fulfilment business Prism DM at the end of July which has been integrated into the Group as Whistl Fulfilment and which gives us a greater presence in the growing e-commerce market. The Whistl business and culture continues to be built upon providing excellent service, and cost eciency, with a human touch.
10 CEO Business Review | Whistl Annual Report 2017
Our markets
Downstream Access mail Business mail collected and processed by Whistl and delivered by Royal Mail through a Downstream Access agreement is the core activity of the company. Although the sector is seeing low single digit decline, largely driven by eSubstitution, we have continued to grow our market share in 2017 and have driven further operational e¤ciencies throughout the business. Today the UK Downstream Access market (DSA) is stable having remained at around 7.1bn items since 2011, with any volume reductions being o¦set by new volume being processed through Downstream Access. In the UK 58% of total mail volume goes through DSA, with c.5bn items delivered outside of DSA, presenting a significant opportunity for Whistl to obtain volumes from beyond the DSA market. The UK mail market is competitive and DSA customers are seeking value, whilst retaining a high-quality service. Whistl will continue to o¦er a high quality and reliable service and aim to be the DSA cost e¤cient leader. Whistl will also continue to serve a variety of sectors,(o¦ering protection against sectoral changes) including retailers, financial services, utilities, public sector, and mailing houses. We are proud to have a diversified customer base including both blue-chip and SME’s, built upon longevity of relationships and we continue to have a proven track record of winning new business and increasing cross sales throughout the client base, further embedding Whistl in the customer’s supply chain. Doordrop Media Whistl’s innovative Doordrop Media o¦erings help brands connect with their target customers in the home. We o¦er a full 360° service from brief to evaluation and utilise analytics to provide intelligent profiling of the client’s customers. We also deliver catalogues and sample products to UK homes via a range of doordrop channels including Royal Mail. The doordrop market has evolved as the circulation of free newspapers has changed in recent years. However, doordrop media is now being seen as an e¦ective medium to direct consumers online, or in conjunction with other advertising mediums, such as direct mail, social media or TV advertising. As a result, investment in doordrop media is starting to increase. The emergence of big data has enabled doordrop media providers to utilise more advanced data analytics to identify the most valuable target consumers and deliver more e¦ective doordrop campaigns. In 2017 we leveraged the growing demand for intelligent and targeted doordrop media and continued to deliver market leading performance, outperforming the rest of the market. We estimate that we currently carry around one in four of all UK doordrops.
Parcels Whistl has a significant opportunity to increase market share in a growing market driven by e-commerce. The UK parcel market has shown significant growth in value and volume in recent years, which has largely been driven by e-commerce. The UK market has grown by 62.9% since 2012, from £6.2 billion in 2012 to over £10 billion in 2016. This growth is expected to continue over the next five years, with the market forecast to exceed £13 billion by 2021. Currently, no single carrier o¦ers the full range of services from economy DSA to premium parcels, resulting in the need for multi-carrier relationships with high complexity and additional cost. This is where Whistl steps in as we o¦er an integrated one-stop broker delivery solution for large letters, packets and parcels for multi-channel retailers. This area o¦ers a significant growth opportunity and Whistl’s unique customer proposition means we are well positioned to acquire new customers and continue to cross sell within our existing customer base. International International distribution can typically require a business to maintain relationships with several di¦erent carriers to meet the needs of their customers worldwide. Moreover, there is increased complexity to overseas distribution because of custom clearance, duties and tax requirements. Whistl has developed flexible, reliable and convenient international outbound and inbound mail and parcel solutions providing a one-stop solution that covers the full range of delivery services and products including untracked, standard tracked and premium tracked. Although international inbound volume forecasts are not readily available, industry experts estimate the current volume to be c. 800m items per annum (sub 2kg) across letters, parcels and flats. The estimated size of the market is 870m and the decline in mail is o¦set by the growth in packets and parcels. During the year we have invested in the International team at Whistl with a remit to develop our International Mail and Parcels product portfolio and increase our carrier partner network to o¦er an unparalleled service.
CEO Business Review | Whistl Annual Report 2017
11
Fulfilment It is estimated that the number of UK retail transactions requiring fulfilment exceeded half a billion in 2014. This represented a market of over £4bn in value and includes both warehousing and transportation services. In July 2017 we invested in Whistl Fulfilment (formerly Prism DM), as part of our strategy to grow in the e-commerce market. Whistl Fulfilment, with facilities in Farnborough and Rushden, is a long-established business in the fulfilment sector and has a range of high profile clients including Long Tall Sally, Oliver Sweeney, Brand Alley, Warner Brothers Studios, Le Chameau, National Trust and Sport Pursuit. Retailers, and particularly small to medium volume retailers, achieve e¤ciency when focused on the sourcing, marketing and selling of their products, rather than spending time and money on the preparation and execution of delivery to their customers. Whistl’s proposition is to accelerate the growth of Whistl Fulfilment’s o¦ering and be the supplier of choice for growing multi-channel retailers by o¦ering an integrated solution across the supply chain to include warehousing, pick pack, payment, call centre management and delivery solutions. Our customers In a market where price is an important consideration our ability to o¦er smart solutions for clients and excellent account management are becoming increasingly important factors in the decision-making process. During 2017 we renewed our contract with Specsavers which now uses our Mail, Parcels and Doordrop Media services. We built on our core DSA Business Mail service with renewed contracts with long standing clients Santander, Liverpool Victoria, Sainsbury’s Supermarkets, BBC TV Licensing and Land’s End. We also renewed other high-profile customer contracts, BUPA; Bourne Leisure (owner of Butlin’s, Haven and Warner Hotels) and SAGA. As part of our growth and diversification strategy into Parcels and International services we expanded the range of services we provide for clients such as Express Gifts, Music Magpie and HomeServe and began trading with Better World Books, Bertrams and Photobox. Strong Account Management continues to get the highest rating in terms of satisfaction/ recommendation factors in our Annual Customer Survey. Our survey response rate is well above the average for a B2B survey and reflects a high degree of customer engagement. Our Employees In 2016 our Annual Employee Survey results were exceptional; we recorded a 92% response rate and 65% engagement level. This year we have achieved an even better response rate of 94% and an engagement score of 70% which is higher than the industry benchmark.
Investment and operational e¨ciency We have a comprehensive UK depot network with capacity to support our planned growth in Parcels, Doordrop Media, Fulfilment and International.
DEPOT KEY HIGHLIGHTS
6 REGIONALLY LOCATED DEPOTS PROVIDING DAILY HANDOVER TO ALL ROYAL MAIL CENTRES, TOGETHER WITH ACCESS TO OTHER PARTNER NETWORKS IN THE UK AND INTERNATIONALLY – PLUS 2 FULFILMENT CENTRES
DEPOTS OPERATE 24 HOURS A DAY, 6 DAYS PER WEEK, WITH 7 DAYS A WEEK IN PEAK PERIODS, OFFERING PROTECTION FROM E-COMMERCE SPIKES
ABILITY TO SORT UP TO 25M ITEMS PER DAY WITH 17 LETTER SORTERS AND 2 PACKET SORTERS
WHISTL CONSOLIDATED ITS NORTHERN DEPOTS AND OPENED A NEW SUPER DEPOT IN BOLTON, WHICH BECAME OPERATIONAL IN 2017 AND ADDS SIGNIFICANT CAPACITY AND OPERATIONAL EFFICIENCY TO THE WHISTL NETWORK
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CEO Business Review | Whistl Annual Report 2017
Regulation In March 2018 Ofcom announced that its costs would be recovered from the industry on a pro rata basis using a relevant turnover basis. As the provider of the final mile delivery Royal Mail retain the bulk of postage revenue and therefore the largest share of Ofcom costs. However DSA companies with relevant turnover in excess of £5m are required to contribute and Whistl will be required to contribute. Ofcom have however decided to exclude DSA revenue when looking at Consumer Advocacy Body costs and these will be borne by those end to end postal operators with relevant turnover of more than £10m and parcel operators with relevant turnover of more than £350m. Whistl are therefore not expected to be impacted by CAB costs recovery proposals. Board changes Pim Berendsen has decided to stand down from the Board of Management following his appointment as CFO of PostNL NV. On behalf of the Board, I wish Pim much success in his new role and would like to thank him for the invaluable contribution he has made at Whistl. We will continue to have access to PostNL expertise as required. Outlook Our core Downstream Access Mail business remains stable and out-performs the market. At the end of the year we secured significant new customer wins including Adare, Age Concern and John Lewis Partnership and we believe we will see volume growth in 2018 in our Mail business as a result of these and other wins. In 2017 we experienced increased pricing competition but continued investment in the business including depot reorganisation and sorting machinery, paid our first dividend to shareholders and have managed to grow our cash position by £14.2m to £37.1m. The programme of e¤ciency and optimisation of the network started in 2017 and will continue in 2018. Together with our growth strategies we anticipate a good increase in profitability during the year. We expect our International Inbound and Outbound, Parcels and Doordrop Media businesses to continue to grow and we will begin to see the benefits of the integration of Whistl Fulfilment into the Group. We expect to support our growth plan with further acquisitions in the first half of the year.
We have committed to continued investment in the business following our management buyout and this year we increased capital investment by 7.3% in the business to ensure we can deliver operational e¤ciency and savings for our clients. Our major investment in 2017 was the opening of our new Bolton super depot located on the Logistics North development by Junction 4 of the M61. We consolidated operations in Leeds and Warrington onto the one site that has 33% greater capacity for future expansion. The move to Bolton has significantly improved the operational e¤ciency of Whistl and the new depot also provides an excellent working environment for our colleagues as well as providing high quality and e¤cient services to our customers.
TRANSPORT KEY HIGHLIGHTS
A WELL INVESTED FLEET ENABLING WHISTL TO REACH EVERY CORNER OF THE UK
A FLEXIBLE OPERATING MODEL OF A CORE FLEET COMPLEMENTED BY SELECTED SUB-CONTRACTORS
UTILISES TELEMETRY AND CAMERAS TO EFFECTIVELY MANAGE THE FLEET AND PROTECT THE DRIVERS
The transport fleet is an important part of our infrastructure and in 2017 we signed a contract for 41 new double deck trailers. We continue to invest in a robust IT infrastructure supporting Whistl’s operational excellence. Investments during 2017 included migration to a new accounting system Navision. Investment in time, to develop a clear and structured supplier management strategy coupled with an overall focus on maximising e¤ciency across the business will enable us to continue to make significant continued savings into 2018.
Nick Wells CEO
April 2018
CEO Business Review | Whistl Annual Report 2017
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CFO Financial Review
Manoj Parmar Chief Financial O¤cer
Our strategy is underpinned by strong operational
eciency and capital discipline which has allowed us to grow the business and invest for the future, while continuing to provide customers’ excellent quality and value.
14 CFO Financial Review | Whistl Annual Report 2017
Investment We have continued to invest in the business with £4.3m of targeted investments in 2017, an increase of 7.3%, to ensure we remain the high quality and e¤cient operator in the market. The programme included network development, fleet renewal and our people. We have also invested in developing our growth strategies with new products and services in parcels, international and fulfilment. The highlight of our investment programme was the opening of our new super depot in Bolton which replaced our Leeds and Warrington depots. This purpose-built facility has generated operational savings and increasing capacity for growth in Parcels. Construction has also commenced of a parcel sortation system in Bolton, to be commissioned in 2018, which will develop our service o¦ering while also further driving e¤ciency and capacity. Financial position We maintain a strong balance sheet, liquidity and credit rating in order to give the Group financial flexibility to invest and grow. Shareholder’s equity increased by £5.9m to £16.2m (2016: £10.3m) due to retained earnings while net cash increased by £14.2m to £37.1m (2016: £22.9m), supported by strong cash management. In addition to cash reserves, the Group can draw on a fully committed facility provided by Royal Bank of Scotland (RBS) totalling £65m which is divided into a credit and working capital facility of £36m and a guarantee facility of £29m. In the year we used the guarantee facility to refinance supplier guarantees previously provided by the former parent company PostNL. The credit and working capital facility remained unutilised during the year. Revenue in Downstream Access and Parcels increased by £10.2m (1.9%) to £538.6m driven by the growth areas of Parcels and International which grew by 10% and 31% respectively. In Mail, volumes per day reduced by only 0.4%. Progress in Parcels and International demonstrates the success of our continuing strategy to grow our presence in these markets which we are supporting with targeted investments and product development. We have integrated new carriers and developed new tracked and untracked economy and premium services to more destinations across multiple formats. Our robust performance in Mail and the stability of the wider DSA market segment demonstrates Whistl’s success at retaining and acquiring customers and the continuing power of the postal medium in the communication mix. Performance Downstream Access and Parcels
The DSA and Parcels market continues to be very competitive, which together with the return of inflationary pressure in the cost base has impacted profitability in 2017. The annual increase in the consumer price index was 3% in December 2017 after almost 2 years below 1%. Whistl’s costs in particular were impacted by the 4.2% increase in the National Living Wage and average fuel prices which increased by 9% after a period of decline. Whistl’s e¤cient network, continuing investments, leadership position in the DSA market segment and strong financial position makes us well placed to respond to competitive pressure. In particular our investments in the Bolton super depot and parcel sortation, while incurring start-up costs in the short term, ensure we retain our place as the most e¤cient and competitive operator in our market.
Group underlying operating profit was £10.5m (2016: £11.8m).
Revenue
Segment
2017 £m 538.6 58.4 6.0 603.0
2016 £m 528.4 63.3 - 591.7
Change £m 10.2
Change % 1.9%
Downstream Access & Parcels Doordrop Media Fulfilment Group
(4.9) 6.0 11.3
(7.7)% n/a 1.9%
Underlying operating profit 1
Segment
2017 Operating £m 9.2 1.1 0.2 10.5
2016 Operating £m 10.9 0.9 - 11.8
Change Operating £m (1.7)
Downstream Access & Parcels Doordrop Media Fulfilment Group
0.2 0.2 (1.3)
1 Excludes exceptional items
Capex
2017 £m 3.1 1.2 4.3
2016 £m
Change £m 1.0
Growth Maintenance Total capital additions
2.1 1.9 4.0
(0.7) 0.3
CFO Financial Review | Whistl Annual Report 2017
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Doordrop Media Revenue for the year of £58.4m (2016: £63.3m), was impacted by political and economic uncertainty in the months around the General Election in June 2017 due to freezes in advertising budgets but recovered in the second half of the year. Underlying trends were positive with growth of the customer base, strong customer retention and market share gains from our competitors. Whistl generates value by helping brands to reach their customers with multi-channel, targeted leaflets, catalogues and sample distribution. Operating profit of £1.4m (2016: £0.9m) increased 56% compared to 2016. Fulfilment In August 2017 Whistl acquired 76% of the share capital of Prism DM for £1.37m which supports our strategy to expand our e-commerce delivery and fulfilment capability on behalf of new and existing customers. The acquisition was funded from the retained earnings of the Group. Prism DM has been integrated into the Group as Whistl Fulfilment. Revenue for the post acquisition period up to the year-end was £6.0m and operating profit was £0.2m. Goodwill and other intangible assets of £0.6m have been recognised in the consolidated accounts of Whistl Group Holdings Ltd in relation to the acquisition of Prism DM. Exceptional costs Exceptional costs of £1.9m were incurred in the year. These include restructuring costs of £1.2m in relation to the transfer of the Leeds and Warrington depots into Bolton and represent exceptional moving and double running costs in the year. The move was completed successfully in 2017 and all one-o¦ costs have now been incurred and recognised in 2017. Other exceptional legal and professional costs of £0.7m were incurred in relation to M&A activity including the acquisition of Prism DM and other ongoing or aborted projects.
Balance sheet
2017 £m (1.9) 9.9 75.2 37.1 (103.3)
Change £m 2.3 1.7
2016 £m (4.2) 8.2
Goodwill & negative goodwill Fixed assets Debtors Cash at bank and in hand Creditors: amounts falling due within one year Creditors: amounts falling due after one year Provision for liabilities Net assets
(1.8) 14.2 (11.3)
77.0 22.9 (92.0)
(0.2)
(0.0)
(0.2)
(0.6) 16.2
0.8 5.9
(1.4) 10.3
Cash flow
2017 £m 19.9
Change £m 8.1
2016 £m 11.8
Net cash from operating activities Taxation (paid) / received Net investment in fixed assets Purchase of subsidiary undertaking net of acquired cash Net cash inflow/(outflow) from financing activities
(0.2) (4.3) (0.9)
(0.1) (0.7) (0.9)
(0.1) (3.6) -
1.2
1.8
(0.6)
(1.5) 14.2
Equity dividends paid Net increase in cash
(1.5) 6.7
-
7.5
Finance costs Interest payable of £0.6m (2016: £0.6m) relates
predominantly to the supplier guarantee facilities in place during the year with PostNL and RBS, prior and subsequent to the refinancing respectively.
16 CFO Financial Review | Whistl Annual Report 2017
Taxation The e¦ective rate of corporation tax was 13.5% (2016:14.7%) which was lower than the standard UK corporation tax rate of 19.2% (2016: 20.0%). This reflects the impact of long-term capital investment programmes, permanent and temporary timing di¦erences. The Group generates revenue, profit and employment, all of which deliver substantial tax revenues for the UK government in the form of VAT, Income Tax and Corporation Tax. The Group’s tax policy, which has been approved by the Board aligns with this strategy and ensures that the Group fulfils its obligations as a responsible UK taxpayer. Dividend The Board approved an interim dividend of 31.4p per share (2016: nil) which was paid on 28 November 2017 to shareholders registered on 27 November 2017 and does not propose a final dividend. The total dividend for the year of 31.4p per share is covered 5.0 times by earnings. Financial Position Net assets increased by £5.9m to £16.2m (2016:10.3m). The net book value of tangible fixed assets and software increased by £1.7m to £9.9m due to the growth in capital additions net of depreciation. Debtors reduced by £1.8m to £75.2m (2016: £77.0m) due to improvements in credit control which o¦set the impact of the Prism acquisition and increased revenue in December. Creditors payable in less than one year increased by £11.3m to £103.3m (2016: £92.0m) due to the acquisition of Prism, an increase in deferred income in Doordrop Media and other accruals.
Cash flow Cash flow from operating activities was £19.9m (2016: £11.8m) and has improved in comparison to 2016 due to cash generation from profitable trading in 2017 and working capital management. Net investments in fixed assets of £4.3m relate to additions including the new Bolton super depot, parcel sortation and continued investment in the network and e¤ciency projects. Cash inflow from financing of £1.2m includes grants received in relation to the new super depot in Bolton, interest charges which predominately relate to supplier guarantees and proceeds from issue of shares to new shareholders. Credit and working capital management The Board of Management closely monitors credit and liquidity risks and is continually looking for improvements to working capital management. Days of trading in accounts receivable and accrued income, a key measure of debtor performance in Downstream Access and Parcels, reduced from 39.0 days to 36.8 days from 2016 and 2017. Overdue debtors as a percentage of the total ledger at the year-end fell from 12.7% to 7.3%. Going concern After reviewing the Group’s forecasts and projections, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The Group and company therefore continues to adopt the going concern basis in preparing its consolidated financial statements. Key performance indicators The Directors are reliant on specific key performance indicators such as, statistics related to market share, sales growth and profitability to provide important guidance as to likely activity and performance within the business. The key performance indicators are described within this Strategic report.
Provisions for liabilities reduced by £0.8m due to the unwinding of residual Final Mile related liabilities.
Manoj Parmar CFO
April 2018
CFO Financial Review | Whistl Annual Report 2017
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Risk Management
Principal risks and uncertainties The Group has determined its key principal risks as those risks that the Group considers material and which could have a significant impact on the Group’s financial position, its operations and/or reputation. Risk management The Group’s principal risk management processes comprise risk registers and reviews, control risk self-assessment and Risk Management Committee. The Group faces a diverse range of risks and uncertainties which could have an adverse e¦ect on its success if not managed. The Group has designed and embedded a risk management process to identify and monitor potential risks and uncertainties relevant to the Group and then seeks to eliminate or reduce these to the lowest extent possible to protect the business, its people and customers, and support delivery of its strategy. The risk management process is intended to mitigate and reduce risk to the lowest extent possible but cannot eliminate all risks to the Group and its businesses. The Group’s risk management process and controls can only provide reasonable and not absolute assurance against material misstatement or loss. The risk management process incorporates both top-down and bottom-up elements to the identification, evaluation and management of risks. Mitigating controls are identified and opportunities for the enhancement are implemented. Risk Governance The Board of Management is ultimately responsible for the Group’s system of risk management and internal controls and reviews their e¦ectiveness on a regular basis throughout the year. Risk overview The Board of Management recognises that the risks faced by the Group change and it regularly assesses risks to manage and mitigate any impact. Summarised on pages 18 and 19 are the key risks, not in order of significance that the Board of Management has identified as the primary risks to the Group’s successful financial performance, reputation or operations in the year ended 31 December 2017 and future years. Financial risk management Whistl Group Holdings Limited has established processes to identify, monitor, mitigate and where feasible, eliminate these risks.
CAPITAL MANAGEMENT Management consider capital to consist of equity plus net debt as disclosed in the balance sheet. The primary objective of the Group’s capital management is to ensure healthy capital ratios in order to support its business and maximise shareholder value. The Group’s financial instruments comprise of cash and liquid resources and various other items, such as receivables and trade payables that arise directly from its operations. The Group’s policy is to finance its operations through operating cash flows and have access to a fully committed £65m facility from RBS. MARKET RISK The Group’s activities are principally provided to UK businesses and as a result the fortunes of the business are linked to the general health of the UK economy. The company’s exposure is limited by having a broad customer base but the business remains exposed to fluctuations in marketing budgets, e-substitution, recession and continued market evolution. REGULATORY RISK The business is trading in a regulated area which a¦ords a level of protection against any anti- competitive behaviour, mandates access to Royal Mail’s network and controls elements of Royal Mail’s pricing against which we compete. The Regulator, Ofcom, has recently conducted a Fundamental Regulatory Review and concluded that these protections should extend for a further five years to 2022. Management considers this risk to be manageable.
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Risk Management | Whistl Annual Report 2017
Price Competition The Group operates in a highly competitive market, commoditisation of mail continues with constant pressure on margins. The Group is focusing on excellent account management and consistent quality of service with initiatives designed to improve competencies surrounding customer services, operational improvement, sales support and training. Whistl provides high levels of customer service at prices that o¦er customers best value. It also seeks to maintain strong relationships with major customers and develop new services. Business continuity The Group has detailed business continuity plans in place for all sites to ensure an immediate and appropriate response to a business continuity issue or disaster scenario. Whistleblowing The Group has in place a Whistleblowing Policy, which all employees and other defined individuals are required to adhere to and is open to suppliers and customers to use if they wish to report any concerns. The Whistleblowing Policy sets out the ethical standards expected of all persons the policy legally applies to and includes the procedure for raising concerns in strict confidence. Employees are encouraged to raise their genuine concerns regarding any malpractice within the Group without fear of harassment or victimisation. Any instances of employee disclosures concerning malpractice are reported to the Executive Board. There were no instances of malpractice reported to the committee during the year. Anti-bribery and corruption The Group operates an anti-bribery and corruption policy which was put in place in response to UK Bribery Act 2010. This policy sets out the responsibilities of employees of the Group in observing and maintaining the Group’s position on bribery and corruption, which is that Whistl will uphold all laws relevant to countering bribery and corruption in all the jurisdictions in which it operates. All employees are required to undertake a Bribery Corruption Awareness training programme as part of their induction process upon joining the Group. We publish our anti-bribery procedure on our intranet and each member of sta¦ has to complete an annual assessment through the company’s myAcademy online training portal. We are committed to actively investigating any reports of a breach in policy. No breaches were reported this year. Modern Slavery Act compliance We conform to the requirements around Modern Day Slavery legislation to ensure we only use resource that can legally work within the organisation and ensure no workforce is engaged that in any way has links to people tra¤cking activity. We actively work to demonstrate appropriate due diligence of our supply chain and we maintain a Modern Slavery Policy and Statement as required by the Modern Slavery Act 2015.
PRICE RISK Pricing of Royal Mail services is determined by Royal Mail but is monitored by the Regulator, Ofcom.
CREDIT RISK The Group has significant credit risk particularly given that a material amount of turnover is the pass through to customers of Royal Mail costs, to whom payment is required on strict terms. There are, however, strong credit controls in place and in addition, the Group utilises credit insurance.
TREASURY MANAGEMENT In order to maintain liquidity and to ensure that su¤cient funds are available for ongoing operations and future developments, all risk exposures including funding, foreign currency, interest rate exposures and cash management are regularly monitored by the Board of Management. The prime focus being performance and strategic issues as well as the mitigation and management of these risks to an acceptable level. The Group expects to meet its financial obligations through operating cash flows. In the event that the operating cash flows would not cover all the financial obligations, the Group has substantial, fully committed unused credit facilities available.
Risk Management | Whistl Annual Report 2017
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Corporate Responsibility and Our People
Whistl recognises the importance of its role in managing social, economic and environmental issues. Corporate Social Responsibility (CSR) is the principal way Whistl seeks to co-ordinate and manage practices to maximise positive social and economic contribution and minimise the environmental impacts of its business. Engagement with key stakeholders including – clients, employees, community, environmental stakeholders, regulators, business partners, suppliers, and our shareholders is central to Whistl’s approach to CSR.
WHISTL DIVIDES CSR INTO THREE SEGMENTS
Customer and Value Chain Where we trade and how we trade
Employees Where we work, how we work and who we work with
Environment How we reduce our impact on the world’s ecosystems and natural resources
Whistl is committed to behaving responsibly and to operate in the most e¤cient way to reduce the impact of our operations on the environment. The Group has been submitting fully collated data to a number of indices including the CDP (formerly the ‘Carbon Disclosure Project’). The CDP is the leading international index of climate change and carbon management for companies.
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Our performance submitted to CDP is as below
CO 2 e* emissions (metric tonnes) Scope 1 – emissions from sources that are controlled by Whistl Scope 2 – emission generated upstream from Whistl Total
2017 16,748 1,904 18,652
2016 17,095 2,011 19,106
Intensity figures Tonnes CO 2
e by revenue
0.031 11.9
0.032 13.2
Tonnes CO 2
e by no of employees
CO 2 e emissions (metric tonnes) by activity Facility heating
91 1,484 15,173
73 1,497 15,525
Small vehicle fleet Large vehicle fleet
Energy consumption (MWh) by type Fuel Electricity
65,211 4,120 497 69,828
66,639 4,350 400 71,389
Heat Total
*CO 2
equivalent
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Environmental & Energy Objectives Whistl remains committed to understanding, managing and reducing the environmental impact of our activities through innovation, technology and cultural change. Whistl is also committed to be a responsible energy user and will practice energy e¤ciency in all premises, plant and equipment, wherever it is cost e¦ective and operationally viable. We must comply with all current legislation and other requirements relating to the environment and its protection, plus energy usage, via our Environmental and Energy Policies, Objectives and Management Systems. Health and Safety We have a comprehensive Health and Safety policy which includes all major regulations and a set of KPI’s are set to monitor implementation and e¦ectiveness of this policy. Between 2016 and 2017 we saw a reduction in days lost through injury and lost time by 60% and a 31% reduction in the number of incidents. Within our depots We reduce our environmental impact through setting targets, underpinned by improvement plans and performance measurement. Our largest contributors to carbon emissions are road transport and materials handling equipment in our buildings. Both these areas have seen continued reductions in 2017 with further reductions planned. With our vehicles We have a fully liveried fleet of 167 HGVs using EuroVI and 117 vans using Euro V clean, energy e¤cient advanced engine technology reducing both our fuel bill and our carbon output. We continue to utilise IsoTrak, a market leading logistics and trunking optimisation software tool, to measure our transport environmental impact and set reduction targets. Our Transport Planning and Small Van Fleet teams use the real-time data available to proactively route around tra¤c delays and road closures ensuring the least disruption to our service possible, minimising waste and higher CO2 emissions. Over the last 4 years we have made a six figure saving in terms of fuel e¤ciency. We also operate 50 double decker trailers to optimise the load capacity and reduce the number of vehicles required for collections and mail trunking. We seek to reduce unnecessary travel by encouraging alternative means of commuting, such as car sharing, and reduce travel by using remote conference calls and Skype.
Our People Our people are key to Whistl’s success. The team is smart, commercial, engaging and passionate about Whistl. We recognise their value and invest in development programmes to help them reach their potential. We have developed and implemented various processes across our business to ensure all employees are given opportunities to access tools to support personal and career development. Since 2010 we have been certified to the Investors in People (IiP) Bronze standard for our sta¦ development and training methodology. In 2017 the certification was re-awarded for our ongoing commitment to sta¦ investment. Treating people fairly is important to us and we have clear policies and practices relating to equality, diversity and pay. Diversity We are committed to eliminating discrimination and encouraging diversity and inclusion amongst our workforce and that all employees or workers are treated with respect and dignity. Our aim is to provide equality and fairness for all in our employment and not to discriminate on grounds of age, disability, gender re-assignment, marriage and civil partnership, race, religion or belief, sex and sexual orientation. We oppose all forms of unlawful and unfair discrimination. respect of employment, promotions, performance appraisals, transfers and training. Whistl will appoint, train, develop and promote on the basis of aptitude and ability. It is recognised that sta¦ with disabilities may require reasonable adjustments to their workplace or have equipment provided in order that they may carry out their normal duties. The company will endeavour to provide reasonable solutions for such situations. All employees are also made aware of our policies and procedures as well as processes to challenge any treatment they deem to be unfair. The company is committed that the workforce whether part-time, full-time or temporary are treated fairly in
22 Corporate Responsibility | Whistl Annual Report 2017
Investing in our people
Skills and Training Our Learning & Development team is committed to ensuring that everyone has the knowledge, skills and expertise to perform to consistently high standards and achieve their potential. A formal development and review plan is in place for each individual. LEAP which is our career development and leadership programme continues to be the cornerstone of our career progression and talent management programme within Whistl. In 2017, 69% of all candidates successfully completed the LEAP programme and 49% of all successful candidates have received a promotion or additional responsibilities since graduating. 2018 will see the programme expand to encompass Whistl Fulfilment. In addition, our online e-learning and performance tool, My Academy has been updated to include ‘My Appraisal’. This enables individuals and managers to carry out appraisals, set objectives and capture employee performance online in a more e¤cient and measurable way. Apprenticeships Since the introduction of the ‘levy’ in April 2017 we have been working with external training providers to clearly understand the new rules around apprenticeships and how we can best use them within our organisation. In addition to the existing driver and warehouse apprenticeships we have introduced new schemes covering engineering and transport planning with a view to widening these schemes to cover most departments within Whistl. We currently have 5 apprentices active within Whistl, however, this will increase with the new opportunities outlined and clarified in the revised framework. The new apprenticeships o¦er training to new sta¦ as well as growing talent from our current employees and with the removal of the ‘aged 25’ restriction this widens the scope of who can qualify and benefit from these qualifications. Engagement and Empowerment We value what our employees think and how they feel. To monitor the satisfaction of our employees, each year we undertake an online employee engagement survey, MySay, run by an independent company. In 2016 the results were exceptional; we recorded a 92% response rate and 65% engagement level. This year we have achieved an even better response rate of 94% and an engagement score of 70% which is higher than the industry benchmark. Valuing our people
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£ £
MEAN
MEDIAN
WOMEN’S PAY IS 0.26% HIGHER THAN MEN’S
WOMEN’S PAY IS 5.15% HIGHER THAN MEN’S
Gender Pay Gap Reporting From April 2018, companies with 250 or more employees, including our main trading company, Whistl UK Ltd, are required to publish certain statistics relating to Gender Pay. Based on the Government’s hourly rate methodology, Whistl UK Ltd’s pay rates were 0.26% and 5.15% higher for women vs men according to the mean and median methodologies respectively. Whistl is committed to ensuring pay is fair, equitable and competitive regardless of gender. Our policies, including our compensation framework, union negotiated operational pay structure and salary benchmarking pay band approach e¦ectively promote equal pay and support gender pay aims. Pay Quartiles The gender pay metric is influenced by the proportion of men and women in each pay quartile. The top pay quartile contains a greater proportion of women compared to the other pay quartiles which increases women’s average hourly rate according to both the mean and median methodologies. The charts opposite shows the percentage of men and women in each quarter of our pay profile. Bonus Pay Bonuses are linked to individual performance and or company targets, which supports a pay-for-performance culture. The bonus pay metric is also significantly influenced by the proportion of men and women in each of the pay quartiles, in particular according to the median methodology which shows that average bonuses to women were 486% higher than to men. This is driven by the greater proportion of men than women in lower pay quartiles. 77.8% of men and 82.1% of women received a bonus in the relevant period.
TOP QUARTILE
36.5%
63.5%
UPPER MIDDLE QUARTILE
24.9%
75.1%
LOWER MIDDLE QUARTILE
27%
73%
LOWER QUARTILE
27.6%
72.4%
MEAN
MEDIAN
WOMEN’S BONUS IS 2.0% HIGHER THAN MEN’S
WOMEN’S BONUS IS 486.4% HIGHER THAN MEN’S
PROPORTION OF MEN AND WOMEN RECEIVING BONUS
82.1% OF WOMEN RECEIVED A BONUS
77.8% OF MEN RECEIVED A BONUS
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Ongoing actions to support the principles of Gender Pay Equality
Flexible Working We recognise the need for all employees to request to work flexibly and we comply with all legislation in regard to the Children and Families Act 2014. We have policies and procedures in place to request and support flexible working which are communicated to all employees and people managers; all policies are available to all sta¦ via our company intranet. Each request is reviewed and considered on a case by case basis and will be accommodated where possible against business requirements. Pensions Since November 2013, as introduced by the Government, we have auto-enrolled all employees on our pension scheme taking into consideration age and income criteria. In addition, we rolled out a second auto enrol programme in 2016 in order to fulfil our legal obligation and the next one is due in 2019. In 2018 there will be a Government increase in contribution levels and Whistl will adopt this as part of our legal responsibility to employees.
Reward principles One of our key reward principles is to ensure pay is fair, equitable and competitive regardless of gender. Bonuses are linked to individual performance and or company targets, supporting a pay-for-performance culture. Employee Engagement We conduct an annual engagement survey and in 2017 we had a 78% positive response to the statement “I believe Whistl is committed to equal opportunities for all its employees” and we achieved an Investors in People Bronze Award in 2016. We take equal opportunities seriously and promote a culture of continuous improvement. Employees can also feedback via our site-based employee forums. Succession planning and talent management We have designed and are delivering a career development programme called LEAP which is specifically designed to equip colleagues with the knowledge and skills to be successful as a leader and manager either in their current role or in preparation for the next step in their career. The programme combines formal workshops, self-led learning, application and reflection activities focused around the behaviours set out in the competency framework. Since inception in 2015, 68 employees have graduated from one of our LEAP courses, 57% Female and 43% Male. Trade Union Representation & National Living Wage To ensure our workforce is fairly treated and represented, we have engaged with the trade union, Community, since January 2012. Community has a network of representatives across all of our sortation depots. From 1 April 2016, we adopted the new National Living Wage. Although the National Living Wage applies to individuals over 25, through working with Community, we agreed to apply this rate to all employees, regardless of age. E¦ective April 2017, we paid all employees above the announced National Living Wage. Additional Benefits To further support employee engagement and support a work-life balance, we have partnered with You at Work/Plus You to provide employees with preferential shopping and membership discounts across a wide range of goods and services across the UK. Employees are able to access these discounts and special o¦ers from home or at work via the Plus You website. Work-Life Balance We o¦er an Employee Assistance Program, partnering with Unum LifeWorks, to support our employees with their emotional wellbeing and work life balance. This is a free of charge service to support our employees with a wealth of resources covering life, health, family, work, money and life changes.
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