The Road to Transaction

Sue Whalley and Dirk-Jan Vanderbroeck

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Four key messages

1. Access to capital through the right investors underpins our future

2. The journey to IPO confirms our strategy is the right one for growth

3. Under new ownership, many things stay the same but we control our destiny

4. Your involvement and leadership are critical

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A reminder of why we need to privatise

“Now the time has come for Government to step back from Royal Mail and allow its management to focus wholeheartedly on growing the business and planning for the future. This Government will give Royal Mail the real commercial freedom that it has needed for a long time” Michael Fallon, MP

“Now the time has come for Government to step back from Royal Mail and allow its management to focus wholeheartedly on growing the business and planning for the future. This Government will give Royal Mail the real commercial freedom that it has needed for a long time” Michael Fallon, MP

“The company urgently needs commercial confidence, capital and corporate experienceto modernise quickly and effectively.”

Accelerated modernisation

Improvedindustrialrelations

Government should tackle the historic

pension deficit

Regulatory reform

“Royal Mail must develop a more constructive working relationship in which both are engaged in the long-term strategic future of the company.”

“..amongst the largest of any UK company.”

“A new regulatory reform is needed to place postal regulation within the broader context of the communications market.”

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Recent Comments

A Royal Mail freed from Government control will be able to

innovate and compete for new business.

Parliamentary report

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But Royal Mail in the public sector has its hands tied in a way its competitors here and in Europe do not. It cannot be right for Royal Mail to come cap in hand to Ministers each time it wants to invest and innovate.The public will always want government to invest in schools and hospitals ahead of Royal Mail.

" "The key objective of our reforms to the postal market is to protect the

one price goes anywhere, six days a week service that businesses and

communities throughout the country rely upon.

Vince Cable

" "

The company now needs the commercial disciplines associated with external

shareholders and the long-term ability to access flexible private capital

Parliamentary report

" "

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Sale of shares: Final step to implementing Postal Services Act 2011

• Strong financial results in 2012/13 gives us a platform for IPO

• Potential sale of shares of Royal Mail Group

• 10% of the shares to be set asidefor employees, on or before Government’s shareholdingfalls to zero

• Historical pension deficit transferred to HMG

• New regulator: Ofcom

• New regulatory framework

• Separation from POL

• New long term agreements

Postal Services Act

•To secure the future of Royal Mail Group and Post Office Limited by:

•Creating a framework for RMG to gain ongoing access to external capital

•Regulatory reform

•Planned pension transfer

•Planned separation from POL

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Choosing the appropriate 'capital' for Royal Mail

• Has to be repaid

• Contractual cost (interest)

• Limited Governance

• Limited benefit from Royal Mail growth

• No need to be repaid

• No contractual payments (dividend)

• Governance rights

• Strong benefit from Royal Mail growth

• Minimise financial risk to Royal Mail

• Provide long-term access to capital

• Seek stable and supportive investors

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Finding the appropriate shareholder base for Royal Mail

• Long term investors

• Good understanding of our Company

• Aware of industry challenges and opportunities

• Supportive of our ongoing strategy

• Committed to the success of Royal Mail

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Preparing the company for an IPO is a valuable process

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A Royal Mail transaction will be unique

• First major UK privatisation by way of IPO since the early 90s

• Largest free share scheme to employees in any major UK privatisation

• Complexity of our business requires us to educate investors and analysts

• Other European postal companies have or are looking to move from Government ownership

• Increased internal communications activity as we seek to educate our own people

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We will also be subject to some new policies and processes• Higher external scrutiny

• Increased attention through share price

• Balance stakeholder interests

• Public statement of targets

• More regular financial reporting

• Listing rules and regulations

• New policies

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From Government to private ownership

• Level of job security• Terms and conditions• Pension risk• Strategy• Growing parcels• Managing decline in letters• Customer experience• Same USO

• 6 days• One price goes anywhere• High service standards

• Universal Service

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From Government to private ownership

• Level of job security• Terms and conditions• Pension risk• Strategy• Growing parcels• Managing decline in letters• Customer experience• Same USO

• 6 days• One price goes anywhere• High service standards

• Universal Service

• Shareholders focused only on the company

• Different lens on what we should do – we are all owners

• Signals future is in our hands

• No room for spending time on what’s not important or controversies

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What we need from you as leaders

• Raise the questions you have so we can get answers

• Break down the concerns you have

• Communicate information to your teams

• Lead – leadership needs to replace administration and management

• Specific briefing packs will be provided

• Further information and training where applicable will be provided nearer the time

• Ongoing updates to communicate and answer questions from teams

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Four key messages

1. Access to capital through the right investors underpins our future

2. The journey to IPO confirms our strategy is the right one for growth

3. Under new ownership, many things stay the same but we control our destiny

4. Your involvement and leadership are critical