1. The Road to Transaction
Sue Whalley and Dirk-Jan Vanderbroeck

2. Four key messages
There’s a lot going on to prepare the company for a potential IPO. We will give you as much information as we can
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

3. A reminder of why we need to privatise
The Hooper Report 2008: 4 Policy recommendations
Hooper Report Update
Accelerated modernisation
“The company urgently needs commercial confidence, capital and corporate experience to modernise quickly and effectively.”
Private sector capital will inject private sector disciplines into the company and will reduce the risk of political intervention in commercial decisions, thus accelerating modernisation.
Improved industrial relations
“Royal Mail must develop a more constructive working relationship in which both are engaged in the long-term strategic future of the company.”
Government should tackle the historic pension deficit
“..amongst the largest of any UK company.”
Regulatory reform
“A new regulatory reform is needed to place postal regulation within the broader context of the communications market.”
“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

4. Recent Comments
A Royal Mail freed from Government control will be able to innovate and compete for new business.
Parliamentary report
"
The company now needs the commercial disciplines associated with external shareholders and the long-term ability to access flexible private capital Parliamentary report
"
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
"

5. Sale of shares: Final step to implementing Postal Services Act 2011
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
June 2011
Historical pension deficit transferred to HMG
New regulator: Ofcom
New regulatory framework
Separation from POL
New long term agreements
March 2012
2013/14
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 aside for employees, on or before Government’s shareholding falls to zero

8. Choosing the appropriate 'capital' for Royal Mail
Different Forms of Capital
Royal Mail Focus
Private Loan
Has to be repaid
Contractual cost (interest)
Limited Governance
Limited benefit from Royal Mail growth
Minimise financial risk to Royal Mail
Provide long-term access to capital
Seek stable and supportive investors
Public Bond
Unlisted Shares
No need to be repaid
No contractual payments (dividend)
Governance rights
Strong benefit from Royal Mail growth
Listed Shares

9. Finding the appropriate shareholder base for Royal Mail
Many different shareholders
Pension Funds
Insurance Companies
Individuals
Employees
Other Asset Managers
Support large UK companies
Royal Mail focus
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

10. Preparing the company for an IPO is a valuable process
Competitive dynamics
Strategic priorities
Deliver operating KPIs
Financial performance
We have successfully articulated our strategy, better aligned the business and are balancing our improved profitability with ongoing need for investment

11. 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
The size, importance and visibility of Royal Mail will put us in the spotlight once again

12. 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

13. From Government to private ownership
Many things will remain the same
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

14. From Government to private ownership
Many things will remain the same
Some will be different
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

15. What we need from you as leaders
What we will give you
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

16. Four key messages
There’s a lot going on to prepare the company for a potential IPO. We will give you as much information as we can
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