Whistl Annual Report 2016

Whistl Limited ANNUAL REPORT 2016

Financial Highlights

Whistl is a delivery management company with core activities in Downstream Access Mail, Doordrop Media and Parcels.

£592 m Turnover

4 % increase Gross margin*

59 % increase Net cash

£38.9m

£22.9m

2016

£37.3m

£14.4m

2015

11 % decrease Administrative expenses*

114 % increase Net assets

£29.4m

£13.7m

2016

£32.9m

£6.4m

2015

118 % growth Operating profit*

43 % increase Capital expenditure

£9.6m

£4.0m

2016

£4.4m

£2.8m

2015

* Excludes impact of E2E final mile activities and exceptional items

Strategic Report | Whistl Annual Report 2016

Operational Highlights

OPERATING PROFIT £9.6 m EBITDA £13.6 m

OPERATING FREE CASHFLOW £8.7 m

OUR THREE GROWTH AREAS LIVED UP TO THEIR NAME

DOORDROP MEDIA INCREASED REVENUE BY 20%

PARCELS VOLUMES GREW 9%

£4M INVESTED IN NETWORK/FLEET AND INFRASTRUCTURE

INTERNATIONAL TRAFFIC GREW 30%

CORE DOWNSTREAM ACCESS MAIL BUSINESS CONTINUED ITS IMPRESSIVE RECORD OF CUSTOMER RETENTION WITH A STRONG EMPHASIS ON PROCESS OPTIMISATION, PRODUCT INNOVATION AND COST-EFFICIENCY. WHISTL PROCESSED 51.6% OF UK DOWNSTREAM ACCESS VOLUMES.

HIGHEST CUSTOMER RECOMMENDATION SCORES ACHIEVED IN ANNUAL SURVEY 34 NPS SCORE 84% CUSTOMER SATISFACTION

Strategic Report | Whistl Annual Report 2016

THE LARGEST DEDICATED DOWNSTREAM ACCESS MAIL NETWORK IN THE UK

REGIONAL DEPOTS provide daily handover to all Royal Mail centres 7

6 day a week operation – increasing to 7 days a week at peak 24 HOUR

Facility to process pre-sorted and unsorted Mailmark items since 2014

Spare capacity maintained to support volume spikes – ability to flex from 5m to 25m items

Protection also from ecommerce spikes

NEW BOLTON DEPOT Opens in July 2017 With greater capacity than Leeds and Warrington depots (both closing) combined

GLASGOW

BELFAST

LEEDS

WARRINGTON

RUGBY

IVER

BRISTOL

Strategic Report | Whistl Annual Report 2016

Our Mission

To grow by doing a great job, with can-do people working efficiently to deliver exceptional service.

Strategic Report | Whistl Annual Report 2016

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 % 73 % 60 % 78 %

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. of customers were satisfied or very satisfied doing business with us.

71 %

84 %

Source: Whistl Annual customer survey 2016

Strategic Report | Whistl Annual Report 2016

Highlights for the year ended 31 December 2016

2016 £’000

2015 £’000

591,713 38,931 29,393 9,538 13,641 - - - - 9,538 6.6% 1.6% 13,749 22,903 12,733 4,039 8,694

Turnover Gross profit* Administrative expenses* Underlying operating profit* Underlying EBITDA* End to End final mile – Cost of sales End to End final mile – Administrative expenses End to End final mile – Operating loss Other exceptional costs Group Operating profit / (loss) – Statutory basis Underlying gross margin percentage* Underlying operating profit percentage* Net assets Cash at bank and in hand Net cash generated from operating activities Capital expenditure Operating free cashflow

605,596 37,290 32,893

4,397 9,222

(2,004) (18,477) (20,481) (2,383) (18,467)

6.2% 0.7%

6,432 14,414 (446) 2,815 (3,261)

* Excludes impact of E2E final mile delivery service and exceptional items.

Strategic Report | Whistl Annual Report 2016

Highlights

• The principal highlight of the year under review was a £28m improvement in Group profitability, compared to 2015, which saw the closure of our Final Mile delivery activities • We saw great progress in all three areas of growth within the business. Parcels experienced an 8.6% increase in volume; Doordrop Media grew by 19.7% and international volume grew by 30.2%. • The satisfying improvement in underlying operating profit was driven by a solid performance in Mail, the three growth areas, together with efficient, high quality operational delivery and keenly focused cost management • We are in a strong financial position with net assets rising from £6.4m to £13.7m, including cash reserves increasing to £22.9m from £14.4m in 2015. There was an increase of £13.2m in net cash generated from operating activities, compared to last year • We have a substantial, fully committed, four-year bank facility of £65m that remains unutilised over the two previous financial years • We increased capital expenditure by 43.5% over last year, showing continued investment in business efficiency including in IT, operational infrastructure and back office systems to support growth in Parcels, International services and Doordrop Media.

Strategic Report | Whistl Annual Report 2016

CEO Business Review

Whistl is a delivery management company providing excellent service, cost efficiently, with a human touch. Our principal activities are the management of Downstream Access Mail delivery, Doordrop Media and Parcels. The company operates in the UK and across international markets. In October 2015, the management team undertook a management buyout (MBO) of Whistl from PostNL N.V. with the original parent company retaining a 17.5% stake in the business. Since the MBO, our strategy at Whistl has been underpinned by our core Downstream Access infrastructure and experience, and is supplemented with growth strategies for our Doordrop Media business and Parcels offering, both in the UK and internationally.

Nick Wells Chief Executive Officer

Strategic Report | Whistl Annual Report 2016

CEO Business Review

OUR MARKETS

Downstream Access Mail Bulk mail is our core business area, which comprises a portfolio of collection and sortation services, with onward delivery via Royal Mail (known as Downstream Access or DSA) and DSA accounts for 58% of the total letters market. Whistl’s share of the Downstream Access Mail volumes in 2016 was over 50% and we remain the key competitor to Royal Mail Retail. The ability to deliver real value continues to be important in a highly competitive market. By focusing on excellent account management and consistent quality of service, we have retained all key strategic customers in 2016, alongside delivering significant new client wins. Although overall mail volumes in the UK remain under pressure, Downstream Access Mail volumes have remained remarkably stable since 2011. There are, however, still an annual five billion items which do not go through Downstream Access which presents an opportunity for Whistl. The main market factors that influence the growth or decline of mail volumes include: e-substitution (which is the main driver for decline of transactional mail volumes, such as invoices and statements); GDP growth (traditionally a driver for advertising mail growth); and Royal Mail price rises. Doordrop Media Doordrop Media focuses on targeting, distribution and sampling services and we continue to be market leader in this sector. It remains an important marketing medium, particularly for the financial sector, charities, retailers and ecommerce companies. Doordrop Media remains one of the most effective customer acquisition channels for marketeers. Our Doordrop Media business has outperformed the market and increased its share of Royal Mail distribution volumes from 24.6% to 30.7% and it also saw an increase in revenue of 19.7% compared with 2015 revenues.

Parcels Within the Parcels market we continue to extend our service offering and this now includes next day tracked, business to business and 48-hour services. The UK parcel sector remains the main driver of growth in the delivery market with continued volume growth in 2016. Whistl’s Parcels business saw an 8.6% volume growth compared to 2015. Books were a key sector for new business growth and three of our top five new accounts are book wholesalers. Parcels remain a key part of our growth strategy in the UK and international markets and, with an excellent run rate of new business wins at the back end of 2016, we expect strong double digit growth in 2017. International The volume of the international outbound Parcels market as a whole grew by 4.0% in the last year, however Whistl saw a 30.2% growth in international business during 2016 versus 2015. As part of our international strategy to grow inbound and outbound mail and Parcels activities, we broadened our carrier network from one key supplier to multiple partners. In 2016 we converted one of our largest financial services customers to use our international services.

Strategic Report | Whistl Annual Report 2016

Our customers Strong customer relationships have been key to our business as we have evolved. We have a diverse customer base covering both the public and private sector and have a strong presence in financial services, utilities, telecoms, retail and ecommerce. We are proud of our ability to sustain long term customer relationships. We secured a seven-year contract renewal, thought to be the longest in the history of the deregulated postal market. We also continue to win new customers, such as the first Northern Ireland Government postal contract which has enabled us to provide new employment opportunities for long term unemployed people and new apprenticeships in the area. During 2016 we completed the integration of our Mail and Parcels sales teams, enabling the sharing of expertise, and strengthening further our Account Management capabilities. By integrating our sales teams we are seeing greater success in cross selling to our customers in all areas from Downstream Access Mail, Doordrop Media and Parcels both in the UK and internationally. This year we achieved our highest customer recommendation score in our annual customer survey. The survey measures Net Promoter Score (NPS) amongst many other performance indicators and has been running for seven years. This year we achieved a score of 34, considered to be excellent compared to our peer group. Investment and operational efficiency Following the management buyout we have continued to invest in the business in order to support our growth plans, deliver operational efficiencies and benefits to our customers. We remain on a strong financial footing to enable investments in our growth areas of Parcels and International Services. In 2016 we increased investment by 43.5%. In terms of our growth areas we invested in a new carrier management and intelligent routing systems for both domestic Parcels and our international requirements. To enable greater capacity for growth we doubled the size of our Belfast depot and, after the year end, we invested in a new super depot in Bolton delivering 30% greater warehouse capacity compared to our current depots. We reviewed our truck and van fleet and current lease agreements and took on 100 new tractor units, all to euro6 standard, and 104 vans, saving 25.6% expenditure on the vans alone. For our operations, we invested in new material handling equipment (forklifts) improving efficiency and saving more than £1m over the next five years. We also reviewed our goods-in system and developed, and invested in, a new process, saving time and improving the process flow.

We maintained our investment in consumables and our IT systems overall. In 2016 this investment focused on re-developing our finance system and delivering a new business information tool both of which will help deliver a better customer experience. Investment in time, to develop a clear and structured supplier management strategy, coupled with an overall focus on maximising efficiency across the business, has enabled us to make significant continued savings into 2017. Our review of transport has resulted in new lease agreements for vans and trucks, changes to our fuel buying strategy and our new approach to buildings leasing (for example moving head office) and accounted for a large proportion of these savings. Operational efficiencies have been delivered as a result of both investment and savings, providing greater capacity, improved quality of service, and an overall lower cost, service offering. At the same time our next day handover quality for 2016 has increased, approaching 98.8% compared to 98.3% in 2015. We are also one of the few companies to have achieved accreditation of ISO9001 under the new 2015 framework. Product development Mailmark (a 2D barcode that carries machine readable information on the user and mail piece) has been live for over three years, which means that the product has been tried, tested and is fully operational within all of our depots. Due to our early adoption and engagement with Royal Mail to make Mailmark a success, we were awarded ‘Mailmark Enabled’ accreditation. Our Parcel services portfolio has expanded to include both tracked and untracked services using our multi carrier approach within the UK and as part of our international service expansion. We are also now in a position to integrate with most of the core ecommerce systems helping deliver a comprehensive offering to online retailers. As part of our development within Doodrop Media we introduced ‘idoordrop’ our 360 degree approach, applying insight and data analytics to target households that fit specific geo-demographic profiles, aimed primarily at marketing and media agencies. The success of this development helped deliver the growth in revenue for Doordrop Media in 2016.

Strategic Report | Whistl Annual Report 2016

CEO Business Review

Regulation In 2016 Ofcom conducted a Fundamental Review of the Regulation of Royal Mail and in its provisional findings, found there were no significant changes needed to the regulatory landscape. The Review findings were confirmed in March 2017. The existing regulatory regime which provides mandated access to Royal Mail’s network for letters and large letters and ensures a minimum price for Royal Mail’s bulk mail prices will be extended to 2022. In addition, Ofcom has published a provisional view that Royal Mail breached competition law by engaging in conduct that amounted to unlawful discrimination against postal operators competing with Royal Mail in delivery. A final decision is expected in 2017. Outlook In our core Downstream Access Mail business, with a good track record of client renewals and wins, we expect volumes to remain stable. We have built upon our operational expertise in mail and transferred it into Parcels both in the UK and Internationally. With an integrated sales team and account management infrastructure in place, we are well positioned to deliver on our growth strategies in 2017. Doordrop Media is expected to continue to outperform the market as the channel proves its value in a digital age. We remain committed to driving efficiency within all aspects of the business and, with our new super depot in Bolton coming on stream in April 2017, we will have the capacity to exploit our growth potential in the ecommerce sector. We are a delivery management company that can exploit the growing ecommerce market because we have services that integrate across the whole ecommerce supply chain. We help generate traffic to a customer’s website through use of Doordrop Media or Downstream Access Mail; we input at the transactional stage by offering tracking services; we work with partners to provide fulfilment; and, then end delivery to the consumer.

WE HAVE USED WHISTL FOR MAILINGS AND DOORDROPS SINCE 2004 – THEY ALWAYS DELIVER EXCELLENT SERVICE AND ARE VERY RESPONSIVE.

KEITH MARTIN SKY

We are committed to be an efficient, high quality and competitively priced company in all of our markets.

Nick Wells CEO

10 March 2017

Strategic Report | Whistl Annual Report 2016

CFO Financial Review

Manoj Parmar Chief Financial Officer

Financial position Focus on profitable and cash generative core activities has put the Group in a strong financial position, with the resources to invest and grow. Net cash at the end of the year was £22.9m (2015: £14.4m) and net assets were £13.7m (2015: £6.4m). Cash flow from operating activities was £12.7m (2015: (£0.4m)). The increase in cash flow compared to the prior year, was due to profitable trading in 2016 and the adverse impact from closure of Whistl’s final mile delivery activities in 2015. The net increase in cash during the year was £8.5m. In addition to cash at bank, the Group can draw on a £65m fully committed credit facility from Royal Bank of Scotland, for a further four years to support investment and working capital. Group structure On 13 February 2017, Whistl NN1 Limited changed its name to Whistl Limited. The Whistl Limited (formerly Whistl NN1 Limited) Group is comprised of ten companies. As at 31 December 2016 there are two main trading companies and eight holding or dormant companies. Whistl UK Limited is the trading entity of the Mail and Parcels business units and Whistl (Doordrop Media) Ltd is the trading entity of Doordrop Media. On 6 March 2016, the Group’s trading structure was simplified when four companies transferred their entire business and assets into Whistl UK Limited at net book value, and subsequently became dormant. The ultimate holding company of the Group, Whistl Group Holdings Limited, was incorporated on 16 September 2015 and was the vehicle used to execute the MBO.

Revenue

Segment

2016 £m

2015 £m

Change

Downstream Access Mail and Parcels Doordrop Media Total Revenue

528.4 63.3 591.7

552.7 52.9 605.6

(4.4)% 19.7% (2.3)%

Group revenues of £591.7m (2015: £605.6m) reduced by 2.3%

Strategic Report | Whistl Annual Report 2016

CFO Financial Review

Operating profit

Segment

2016 £m Operating profit

2016 % Operating margin

2015 £m Operating profit

2015 % Operating margin

Change

Variance

Operating profit

Operating margin

Downstream Access Mail and Parcels Doordrop Media Underlying Operating Profit

8.7 0.9 9.6

1.6% 1.4% 1.6%

4.1 0.3 4.4

0.7% 0.5% 0.7%

112.2% 200.0% 118.2%

0.9% 0.9% 0.9%

Downstream Access Mail and Parcels Operating profits from Downstream Access Mail grew by 112.2% to £8.7m predominantly due to improvements in operational efficiency and a strong focus on administrative costs. We have reduced operational costs while, at the same time, boosting quality by optimising the way we work through efficiency reviews and our procurement led supplier management programme. We will continue to make key investments in IT, depots and vehicles to ensure that we remain the lowest cost, highest quality operator in the market. The 2015 closure of our final mile delivery activities required Whistl to streamline administrative and central costs through a combination of head count reduction and procurement led initiatives in operations, facilities and IT. Downstream Access administration expenses before exceptional items reduced by 12.4% compared to 2015. Whistl manages delivery costs by the selection of suppliers and channels as well as the optimisation of mail piece weights, sortation and formats including our market leading early adoption of Royal Mail’s Mailmark solution. Doordrop Media Doordrop Media operating profit grew by 200.0% to £0.9m due mainly to revenue growth. Operating margin increased to 1.4% (2015: 0.5%) and also benefited from strong cost control within administrative expenses.

Mail revenues generated by Whistl’s Downstream Access Mail and Parcels and International services reduced by 4.4% in 2016 to £528.4m (2015: £552.7m). This reduction included the impact of the closure of Whistl’s final mile delivery activities in 2015 with the consequent loss of some mail volumes associated with the service, together with a change in the price and mix of processed volume. Revenue was also lowered by an increase in customers choosing to appoint Whistl as agent, rather than principal, which reduces revenue but has no impact on volume or profitability. Revenues in the growth areas of Parcels and International services increased by 6.3% and 10.3% respectively, due to Whistl’s investment in product development, including our tracked domestic and international broker solutions. Volumes for those services grew by 8.6% and 30.2% respectively. Doordrop Media revenues grew by 19.7% to £63.3m (2015: £52.9m) due to the success of Whistl’s idoordrop service. The revenue and volume has grown by offering customers and media agencies a 360° service from brief to evaluation that applies insight and data analytics to target households that fit specific geo-demographic profiles. Doordrop Media makes use of multiple delivery channels including Royal Mail and our own network of delivery agents to best match customers’ needs at competitive prices. Group operating profit before exceptional items increased by 118.2% to £9.6m and Group operating margin increased to 1.6% from 0.7%. Whistl effectively and continuously manages its operating margins, which is essential as we manage third party delivery suppliers on behalf of our customers and pass through the delivery costs, which comprise a large part of the cost base. This is also a strength in our operating model as high, third party fixed costs, are variablised for Whistl.

Strategic Report | Whistl Annual Report 2016

In 2015 Whistl incurred exceptional costs of £22.9m due to the operation and closure of the final mile delivery service and other restructuring and non-recurring costs of £2.4m. Whistl awaits the outcome of the competition investigation by Ofcom into Royal Mail’s behaviour, that ultimately led to the closure of the final mile end to end activity. Investment in fixed asset additions in relation to core business increased by 60.0% to £4.0m in 2016. Investment is targeted to develop the business in the growth areas of Parcels services, International services and Doordrop Media, to maintain leading operational quality and to improve

management information. Management information systems are critical in our business to optimise processes, manage risks and furnish customers with the information that they need.

Net assets increased by £7.3m to £13.7m (2015: £6.4m) due to the profit for the financial year.

Fixed assets relate to software, plant and equipment and other tangible fixed assets in use by the business in its day to day activities. Fixed assets have reduced by £0.5m due to depreciation and disposals exceeding new additions.

Exceptional costs

2016 £m

2015 £m (20.5) (2.4) (22.9)

– – –

End to End final mile – Operating loss Other exceptional costs Total exceptional income costs

Capital investment

Capital additions to fixed assets

2016 £m 0.9 1.6 1.5 4.0 - 4.0

2015 £m 0.4 1.6 0.5 2.5 0.3 2.8

Change % 125% - 200% 60% (100)% 43%

Product development Operations Back office & management information Total core activities Final Mile Total capital additions

Balance sheet

2016 £m 8.2

2015 £m 8.7 80.9 14.4 (95.0) (2.6) 6.4

Change £m

Fixed assets Debtors Cash at bank and in hand Creditors: amounts falling due within one year Provisions for liabilities Net assets

(0.5) (3.9)

77.0 22.9 (93.0) (1.4) 13.7

8.5 2.0 1.2 7.3

Cash flow

2016 £m 12.7 (0.1) (3.6) - (0.6) 8.5

2015 £m (0.4) 2.5 (2.8) 0.1 (0.4) (1.1)

Change £m 13.1

Net cash from operating activities Taxation (paid)/ receipt Net investment in fixed assets Interest received Net cash used in financing activities Net increase/ (decrease) in cash

(2.6) (0.8) 0.1 (0.2) 9.6

Strategic Report | Whistl Annual Report 2016

CFO Financial Review

Effective working capital management is essential to the Group due to the high pass-through of third party distribution costs and is closely monitored by the Board of Management to manage credit exposure and liquidity risks. A major component of working capital relates to trade debtors. Debt turn, our key measure of cash collection, reduced from 31.3 days to 31.1 days from 2015 to 2016. Overdue debtors reduced from 16.5% to 12.7% of the ledger. We are continuously looking to improve our working capital management and this will remain a feature of the business going forward. Provisions for liabilities of £1.4m (2015: £2.6m) relate to residual costs from the termination of certain operating leases. Cash flow from operating activities was £12.7m (2015: (£0.4m)) and has improved in comparison to 2015 due to the closure of the final mile delivery activities in 2015 and cash generation from profitable trading in 2016. Corporation tax paid by the Group amounted to £0.1m as profits generated were offset against losses carried forward from prior years and in 2015, the Group received tax refunds of £2.5m. Net investments in fixed assets of £3.6m relates to fixed asset additions. Dividend The Board of Management did not recommend the payment of a dividend. 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.

WHISTL REALLY UNDERSTAND OUR BUSINESS AND PRIORITIES AND HELP US ACHIEVE THEM.

CLAIRE SCHWEIDLER KIRKLEES COUNCIL

Manoj Parmar CFO

10 March 2017

Strategic Report | Whistl Annual Report 2016

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 process comprises risk registers and reviews, control risk self-assessment and a Risk Management Committee. The Group faces a diverse range of risks and uncertainties which could have an adverse effect 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 effectiveness on an annual basis. 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 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 as at the year ended 31 December 2016.

Financial risk management Whistl Limited has established processes to identify, monitor, mitigate and where feasible, eliminate these risks.

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 Group’s exposure is limited by having a broad customer base but the business remains exposed to the vagaries in marketing budget expenditure that was disrupted by e-substitution and recession and the continuing evolution of the market. REGULATORY RISK The Group operates in a regulated market which affords a level of protection against any anti-competitive behaviour, mandates access to Royal Mail’s network and controls elements of Royal Mail’s pricing The Regulator, Ofcom, has recently conducted a Fundamental Regulatory Review and concluded that these protections should extend until 2022. Management considers this risk to be manageable. CREDIT RISK The Group has some credit risk because a material amount of its turnover is the pass-through to customers of Royal Mail’s, and other third party, charges. Those charges are payable on strict terms. There are, however, strong credit controls in place and in addition, the Group utilises credit insurance. LIQUIDITY AND CASH FLOW RISK In order to maintain liquidity and to ensure that sufficient funds are available for ongoing operations and future developments, all risk exposures are monitored by the Board of Management regularly. 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 do not cover all the financial obligations, the Group has substantial, fully committed unused credit facilities available. PRICE RISK Pricing of Royal Mail services is determined by Royal Mail but is monitored by Ofcom.

The Group is not exposed to any significant currency or interest rate risk.

Strategic Report | Whistl Annual Report 2016

Risk Management

Price competition The Group operates in a highly competitive market but Whistl provides high levels of customer service at prices that offer customers best value. It also seeks to maintain strong relationships with major customers and develop new services, aiding mitigation of the competition risk. 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. During the year under review, the Group successfully completed its IT disaster recovery migration for certain business critical applications and services. 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. Modern Slavery Act compliance 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.

Anti-bribery and corruption The Group operates an anti-bribery and corruption policy which was put in place in response to the 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 staff has to complete an annual assessment through the Group’s My Academy online training portal. We are committed to actively investigating any reports of a breach in policy. No breaches were reported this year. 2016 developments Throughout 2016 the Group has continued to develop an integrated approach to its risk and assurance activities. Specifically, the following improvements have been implemented: We have set up an Audit Committee and formed a Risk Management Committee to ensure risk management is embedded into business function across the Group.

Strategic Report | Whistl Annual Report 2016

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 customers, employees, community, environmental stakeholders, regulators, business partners, suppliers, and our shareholders is central to Whistl’s approach to CSR. Whistl is committed to behaving responsibly and to operate in the most efficient 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

WHERE WE TRADE AND HOW WE TRADE

WHERE WE WORK AND HOW WE WORK AND WHO WE WORK WITH

WHISTL DIVIDES CSR INTO FOUR SEGMENTS

HOW WE SUPPORT THE COMMUNITY AND WORLD AT LARGE

HOW WE REDUCE OUR IMPACT ON THE WORLD’S ECOSYSTEMS AND NATURAL RESOURCES

Disclosure Project”). The CDP is the leading international index of climate change and carbon management for companies.

Strategic Report | Whistl Annual Report 2016

Corporate Responsibility and Our People

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 (fork lift trucks) in our buildings. Both these areas have seen reductions in 2016 with further reductions planned. In the past year, we have implemented the Toyota I-site materials handling equipment solution across our whole operation. This fully managed service provides vehicles, interactive software and driver training. The package provides: • Cost optimisation through ensuring the right vehicles are in the right place at the right time and through driver training to minimise damage in our depots • Improved productivity from data blending vehicle use and driver effectiveness • Support for monitoring of Health and Safety through driver training and license management • Positive environmental impact through a reduction of truck usage combined with battery and fuel optimisation Other initiatives include installation of energy efficiency measures like T5 lighting and power down sensors. We also focus on waste re-cycling by using reusable consumables (e.g. for mail collection, packing, strapping, and plastics).

THEIR LEVEL OF INTEREST IS REFRESHING AND SHOWS THE CARE/ RELATIONSHIP THAT HAS DEVELOPED BETWEEN WHISTL AND THE WORKS. WE ARE A PARTNERSHIP THAT CONTINUES TO GROW TOGETHER.

PETER JOWITT THE WORKS

All environmental programmes are reviewed at least annually.

Strategic Report | Whistl Annual Report 2016

KEY EMPLOYEE FACTS 2016

66.5%

33.5%

MALE V FEMALE

OVERALL NUMBER 1,438

MALE 956

FEMALE 482

With our vehicles In 2016 we invested in 100 new tractor units that will further reduce our fuel bill and carbon output as they use clean, energy efficient advanced euro6 engine technology and soot filters. We 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 traffic delays and road closures ensuring the least disruption to our service possible, minimising waste and the higher CO 2 emissions. 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 use a range of vehicles for company cars including hybrid and seek to reduce unnecessary travel by encouraging alternative means of commuting, such as car sharing, and reduce travel by using remote conference calls and WebEx.

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. Following the closure of the final mile activities in 2015, and the associated reduction in employees, 2016 has seen greater stability in our workforce who are now focussed on delivering great service to our core customers in the Downstream Access business and in our growth areas of Doordrop Media, International services and Parcels services. Since 2010 we have been certified to the Investors in People (IiP) Bronze standard for our staff development and training methodology and in 2016 we were re-awarded the same for our ongoing commitment to staff investment. Treating people fairly is important to us and we have clear policies and practices relating to equality, diversity and pay.

THE TEAM HAVE BEEN VERY PERSONABLE, HELPFUL AND RESPONSIVE.

JUGRO SCARLETT DSG RETAIL LIMITED

Strategic Report | Whistl Annual Report 2016

Corporate Responsibility and Our People

SENIOR MANAGERS

MANAGERS

STAFF

OF WHISTL TEAM HAS BEEN WITH US OVER 5 YEARS 38%

MALE 40

FEMALE 21

MALE 70

FEMALE 59

MALE 846

FEMALE 402

How we invest in our people

Apprenticeships We have a long standing and successful apprenticeship programme. Through this programme, we have recruited, trained and retained in permanent roles, young people between the ages of 16-24 in mail services, logistics and business administration roles. One of our ex-apprentices (currently still employed with us) has been heavily involved in representing apprentices on a national level at Learner Voice events and at National Union of Student conferences. In 2015 we had approximately twelve apprentices working within the business, during 2016 this has declined slightly to nine whilst we await the outcome of the Apprentice Levy legislation and the impact, however, it is our intention to continue to support the apprentice programme into the future. 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, My Say, run by an independent company. In 2016 the results were exceptional; we recorded a 92% response rate and 69% engagement level. The external consultant who evaluated the results described these results as exceptionally high for our type of business. Equality and Diversity We appreciate the importance of having a diverse workforce and have policies and procedures in place to ensure all individuals, whether part-time, full-time or temporary are treated fairly in respect of employment, promotions, performance appraisals, transfers and training. All employees are also made aware of our policies and procedures as well as processes to challenge any treatment they deem to be unfair. How we value 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 is our career development and leadership programme for the whole business. It builds on presenting, leadership and programme management skills and each participant is partnered with a carefully selected mentor.

The aim of LEAP is to:

• Grow our own internal talent pool to allow for succession

• Build leadership capability

• Realise increased efficiencies and service quality for customers

In addition, our online e-learning tool, My Academy enables us to build capability across the workforce and reduce training investment needs as it provides compliance and competency training. This logs individual learning and is available to all staff via PC, phone or tablet.

Strategic Report | Whistl Annual Report 2016

Corporate Responsibility and Our People

Trade Union Representation & National Living Wage To support our workforce we recognise the trade union, Community. Community has a network of representatives across all of our 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. With effect from April 2017 we will pay 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 offers from home or at work via the Plus You website.

Work-Life Balance We offer an Employee Assistance Programme, 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. Flexible Working We recognise the need for all employees to request to work flexibly and we comply with all legislation in regards 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 staff via our company intranet. Each request is reviewed and considered on a case by case basis and will be accommodated, where possible, within business requirements. Pensions In November 2013, we 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 a further enrolment is due in 2019.

Strategic Report | Whistl Annual Report 2016

Governance

SHAREHOLDERS

BOARD OF MANAGEMENT

REMUNERATION COMMITTEE

AUDIT COMMITTEE

EXECUTIVE BOARD

RISK MANAGEMENT COMMITTEE

INTERNAL AUDIT

EXTERNAL AUDIT

GOVERNANCE STRUCTURE

Strategic Report | Whistl Annual Report 2016

BOARD OF MANAGEMENT

Nick Wells Chief Executive Officer, Remuneration Committee Secretary

Manoj Parmar Chief Financial Officer, Audit Committee Secretary

Nigel Polglass Chief Operations Officer

James Greenbury Non-Executive Director, Audit Committee member, Remuneration Committee member

Pim Berendsen Non-Executive Director, Audit Committee member, Remuneration Committee member

Strategic Report | Whistl Annual Report 2016

Governance

EXECUTIVE BOARD

Nick Wells Chief Executive Officer

Nigel Polglass Chief Operations Officer

Manoj Parmar Chief Financial Officer

Andrew Goddard Commercial Director

Mark Davies Managing Director (Doordrop Media)

Lynn Dillon Human Resources Director

Charles Neilson Director of Postal Affairs

Lieneke Happel Director of IT & Product Development

Tiemen Van Bruggen Operations Director

Strategic Report | Whistl Annual Report 2016

Governance

Board of Management Whistl Group Holdings Limited is led and controlled by the Board of Management, who are collectively responsible for the long-term success of the Group and the endorsement and application of corporate governance. The Board of Management is comprised of three executive directors, a representative non-executive director appointed by PostNL and a senior non-executive director. The directors are not currently subject to retirement by rotation and there is no plan to implement such a regime. The Board of Management always aims to keep an appropriate balance of Board of Management expertise and length of director tenure and recognises that tenure must be considered when examining the independent status of non-executive directors. Board of Management sub-committees The Board of Management is supported by three sub- committees – an Audit Committee, Executive Board and a Remuneration Committee. Each committee has terms of reference which are reviewed and revised where necessary. Our approach to corporate governance is to instil it throughout the business, with the Board of Management, taking collective responsibility for the overall management and leadership of the business, together with individuals and teams, taking ownership and being empowered to take appropriate decisions while reporting into the Executive Board, which in turn, reports into the Board of Management. The Board of Management acknowledges its accountability in the performance and success of the business to its shareholders.

The Board of Management’s agenda also covers:

• Planning and monitoring Group strategy

• Financial and operational risk management

• Financial reporting and treasury matters

• Performance of key management personnel and the Executive Board. The Board of Management operates robust procedures to ensure all decisions are made objectively: • The Board of Management meetings take place on a monthly basis • Conflicts of interest are declared openly and in advance and are managed respectfully • The Board of Management receives a report from the Chief Executive and Chief Financial Officer as well as reports from its various committees and the Executive Board • Members of the senior management team make presentations to both the Board of Management and the Executive Board on specific topics, creating a close connection between the Board of Management and the rest of the business • In the period between Board of Management and Executive Board meetings, all directors receive email updates on significant matters arising. This may result in discussion by conference call between Board of Management meetings Communication with stakeholders Throughout the year, the Group has maintained regular monthly contact with its shareholders and investors to ensure that the interests of shareholders are aligned with the Company’s. Good governance is an essential tool in ensuring that stakeholders remain committed partners as we invest in our business for the longer term.

THEY ARE VERY PROACTIVE, KNOWLEDGEABLE AND RESPONSIVE, SO I KNOW THAT IF I DID HAVE ANY ISSUES, THEY WOULD BE DEALT WITH SPEEDILY AND EFFECTIVELY.

CATE HOLLIS YORKSHIRE BUILDING SOCIETY

Strategic Report | Whistl Annual Report 2016

Directors’ Report for the year ended 31 December 2016

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent company’s transactions and disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. Matters covered in the Strategic Report Discussion of going concern, financial risk management, future developments and payment of dividends have been included in the Strategic Report. Statement of disclosure of information to auditor In the case of each director in office at the date the Directors’ Report is approved under section 418, the following applies: (a) So far as the director is aware, there is no relevant audit information of which the company’s auditor is unaware; and (b) He has taken all the steps that he ought to have taken as a director in order to make himself aware of any relevant audit information and to establish that the company’s auditor is aware of that information. Independent auditor KPMG LLP was appointed auditor during the year. Pursuant to Section 487 of the Companies Act 2006, the auditor will be deemed to be reappointed and KPMG LLP will therefore continue in office.

The directors present their report and the audited consolidated financial statements of the Group for the year ended 31 December 2016. Directors The directors who served the company during the year and up to the date of signing the financial statements were as follows:

N Wells N Polglass (Appointed 17 May 2016) M Parmar

The directors benefit from qualifying third party indemnity provisions in place during the financial year and at the date of this report. Political donations The Group made no political donations (2015: £nil) during the year. Statement of directors’ responsibilities The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law, they have elected to prepare the Group and parent company financial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice), including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and parent company and of their profit or loss for that period. In preparing each of the Group and parent company financial statements, the directors are required to:

Signed on behalf of the Board

• Select suitable accounting policies and then apply them consistently;

• Make judgements and estimates that are reasonable and prudent;

M Parmar Director

• State whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; • Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the parent company will continue in business.

10 March 2017

Directors’ Report | Whistl Annual Report 2016

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