Jersey Post International Limited: Business Review for the year ended 31st December 2016

Jersey Post International Limited

Business Review for the year ended 31 December 2016

www.jerseypost.com R.81/2017

Contents

Directors, Officers and Advisors  3 Board of Directors  4 Chairman s Statement  6 Strategic Report  8 Statement of Corporate Governance  14 Directors Report  18 Consolidated Income Statement  20 Consolidated Statement of Comprehensive Income  20 Consolidated Statement of Financial Position  21 Consolidated Statement of Changes in Equity  22 Consolidated Statement of Cash Flows  23 Notes to the Financial Statements  24 Five Year Summary  46

Directors, Officers and Advisors

Directors of Jersey Post International Limited

Jurat Mike Liston OBE, FREng, BSc, CEng, FIEE Non-Executive Chairman (resigned 1 April 2017)

Tim Brown FIoD, FCILT, CPFA Chief Executive Officer

Tim Barnes ACMA

Finance Director (appointed 3 March 2017)

Chris Evans Non-Executive

Donal Duff BAAF, FCA, AMCT Non-Executive

Alan Merry

Non-Executive (appointed Chairman 1 April 2017)

Sue Barton

Non-Executive (appointed 1 April 2016)

Company Secretary

Tim Brown FIoD, FCILT, CPFA

(appointed 1 April 2016, resigned 3 March 2017)

Tim Barnes ACMA (appointed 3 March 2017)

Auditors of the full statutory annual report and financial statement

Price waterhouseCoopers CI LLP

37 Esplanade, St. Helier , Jersey, JE1 4XA

Bankers

HSBC Bank plc

PO Box 14 , St. Helier , Jersey, JE4 8NJ

Registered office

Postal Headquarters

La Rue Grellier, La Rue des Pres Trading Estate, St. Saviour , Jersey, JE2 7QS

Non-Executive, Donal Duff qualified as a Chartered Accountant with Coopers & Lybrand in Ireland in 1991 and subsequently transferred to its Jersey office in 1993 to work on a wide range of audit and corporate finance assignments. In 1996, he joined Le Riche Group Limited, a listed company, as Group Financial Controller, where he performed a variety of roles until such time as it was acquired by CI Traders Limited, an AIM-listed company, in 2002. Donal was Director of Finance and Company Secretary of CI Traders, the largest private sector employer in the Channel Islands, until its acquisition by a private equity consortium in 2007 and he continued to work with the new owners until 2008. He subsequently worked in a variety of roles in the Stanley Gibbons Group plc from 2009 to 2016 most notably as Chief Finance Officer until late 2016. Today, Donal is Director of Finance at Calligo Limited, a Jersey based IT company specialising in the provision of cloud services for infrastructure, applications and communications.

1Directors at the time the board approved the financial statements.

Chris Evans Non-Executive Director

Non-Executive, Chris Evans has worked in the information technology services sector for 30 years and has been involved in

the formation and running of a number of IT businesses. Until July 2014 Chris was the Chief Executive of Foreshore, an Internet services business, promoting Jersey-based digital business to a global customer base. Chris has served as a Non-Executive Director on a number of boards and has been a member of States of Jersey committees specifically tasked with examining diversification opportunities for the Island.

Alan Merry (appointed Chairman 1 April 2017) Non-Executive Director

Non-Executive, Alan Merry has extensive international senior executive and board-level experience gained across a range of business sectors including financial services, retail, renewable energy and professional services. As a Director of CPA Global, the world s leading provider of intellectual property and legal support services, he played a key role in the international growth and development of the business.

Now running his own consultancy, Alan works with businesses and executive teams supporting transformational change and focuses on the development of strategy, change management, strategic HR and improving board and organisational effectiveness. Most recently, Alan has worked closely with the board and executive team on the incorporation of the Ports of Jersey.

Susan Barton Non-Executive Director

Non-Executive, Sue is a qualified management accountant and accredited mediator with over 20 years experience of the postal and professional services industry having held leadership positions with PA Consulting, Accenture and the UK Post Office.

As a consultant, she worked with many of the leading international postal organisations providing support and advice across

a broad spectrum of areas such as strategy development; quality of service; operational performance; and organisation

design. She also conducted independent reviews of strategic business plans and supported the renegotiation/restructuring of commercial contracts. Most recently Sue was the Strategy Director at the UK Post Office where her portfolio included Strategy, IT, Mutualisation and the Strategic Programme Management Office.

Chairman s Statement

This was my eleventh and final year as Chairman of Jersey Post and it is gratifying to report not only on another 12 months of strong financial and operational performance, but also on the greatly encouraging results from our roll-out of the final phase of the business strategy which the Board of Directors defined soon a er taking responsibility for the company upon its Incorporation in 2006. Revenues grew for the third consecutive year and pre-tax profits reached a five-year high at £2.4M, yielding

a return on turnover of 6%, which ranks well within the postal industry. The recommended dividend of £0.7M is adequately covered to allow our continued investment in the business.

I have documented in my previous annual statements, how external events have created the imperatives for radical change at Jersey Post, which although o en traumatic for its staff and occasionally disruptive for its customers, has been transformational in equipping the company for the future. My ability this year to report good prospects seen early in the

 Growth phase of our strategy for success, is only possible because of the sacrifices made by so many of our people in the previous two phases.

The Survival phase earlier in the current decade involved deep cost-cutting in response to the crisis caused when the impact of market opening policy of Jersey s Competition

and Regulatory authority was compounded by the sudden withdrawal of Low Value Consignment Relief (LVCR) by the UK government. The immediate collapse of the Island s

fulfilment industry wiped out half of Jersey Post s annual revenues, putting in peril its ability to fund its Universal Service Obligation the core activity of collecting and delivering mail, which at that time was loss-making.

The Stabilisation phase which followed aimed to achieve sustainability in the performance of the company s people, business processes and technology, all of which had

been adversely impacted by the explosive rate of change demanded in the Survival phase. With an overall focus on locking-in the reduced cost base for lasting competitiveness, stabilization involved the re-engineering of organizational structures; the enhancement of leadership capabilities at

all levels, and the acceleration of investment in essential IT infrastructure, operational automation and smart technology, in readiness for the final, Growth phase of our business strategy, which is now underway.

The Growth phase of our strategy is no less an imperative for Jersey Post than the Survival and Stabilisation phases were, given the ongoing decline in our home market. Here, as elsewhere, we are seeing dramatic decline in the use of mail for communication. Letter volumes have fallen by two-thirds during the past decade as the digital revolution marches on. In Jersey as elsewhere, the battle among competitors for what business remains, risks a race to the bottom . Jersey Post alone has a legal duty to provide a comprehensive postal service and as the fixed costs of operating an island-wide service confront falling mail volumes, economic unviability is inevitable. If nothing is done, then within the next three years Jersey post will be loss-making if substantial price rises and service cut-backs are to be avoided. It is against this scenario that our Growth strategy aims to turn the threat of the digital revolution into opportunity.

Rapid globalisation of the World s economy and accelerating growth in online retailing has seen the volume of cross-border packets and parcels doubling every five years. Jersey Post s capabilities equip it well to capture at the very least, the small slice of the opportunities in this global market which it needs to fund its obligations here in Jersey. One of the positive legacies of its experience during the fulfilment era in Jersey is its unique capability, relative to its size, in cross-border freight forwarding; air conveyance; commercial customs clearance; warehousing and even pick & pack.

Following three years of targeted research, market testing and trials, we so -launched our International business during

the year. Facilitated by our recent admission to the Universal Postal Union in recognition of our prized status as a National Postal Authority, we have established operations in the Far East, North America and the UK. Early signs from this initiative

are encouraging, not just because of new multi-million dollar revenues but also because of the boost to our diversification away from dependency on mail business. Together with our long-established logistics, parcels, financial services and retailing businesses at home, this new International market has nudged us beyond a notable milestone less than 30% of Jersey Post s revenues now come from mail. The new overseas dimension also means that one quarter of the carriage we perform never comes near Jersey.

The benefits we hope for from successful diversification reach beyond just the usual financial criteria. Our customers at home are already benefitting from the investments we ve been making in the digital capabilities demanded by our Growth strategy. We are rapidly approaching the moment when customers can choose to interact with us entirely through digital means. We will soon know so much about the personal preferences of our customers and the precise location in- transit of everything being sent to or by them, that we will be able to serve them, whether they re at home, work or play. We are moving from collection and delivery to addresses, to collection and delivery to individuals.

Our International diversification is not without risk and uncertainty, not least the still unknown effects of the UK s impending exit from the European Union. The devaluation

of Sterling since the UK s decision has adversely impacted the value of our foreign earnings and currency hedging

offers only limited comfort for the future. Moreover, no clarity is emerging yet on such vital issues as trade tariffs and customs rules, post-exit. Our intention is to remain prudent

in our search for growth overseas forming few but deep trading partnerships with credible operators in our preferred territories and cementing them where strategically sensible, with equity investment.

Looking back from my own exit at Jersey Post, the prospects which I see for the company are more promising than

ever. The strength of the Board and management team is higher than ever, having been refreshed with new talent throughout the many phases of the organisation s evolution from a department of government to a resilient and dynamic enterprise. Its success in responding to external shocks illustrates the merits of the Incorporation model which brought it under the leadership of professional, independent directors. The clarity of their absolute responsibilities for governing the company provided the courage, and the commensurate authority vested in them provided the means, to act decisively when needed.

The arrangements for oversight of States owned or controlled entities is under review. There are obvious reasons why

governments should want to exert authority at the strategic level of enterprises they own. Equally, there

are understandable reasons why boards resist political interference in tactical or operational matters. The risks in changing the balance of responsibility and authority at the top of any business are profound, with confusion over accountability leading to paralysis, risk aversion and dri .

Observing over many years their mutual pursuit of the public good, I detect no conflict between the States of Jersey and the Boards of its utilities, which cannot be resolved by direct dialogue or made worse by inserting a new supervisory body between them.

Jurat Mike Liston OBE Chairman (Resigned 1 April 2017)

Mike Liston held the position of Chairman for the full financial year and resigned on 1 April 2017, at the end of a period of 11 years as Chairman of Jersey Post. As incoming Chairman, I am happy to sign the statement as reflecting not only Mike s views but also those of all of the other Directors.

Alan Merry Chairman 12 May 2017

Jersey Post International Limited

Strategic Report

Judging a company s success is not always easy. 2016 has seen the third year in a row of revenue growth a er the loss of business due to the ending

of LVCR, and our highest profit before tax for over 5 years giving a return of 6%. As a result, our tax paid to the States of Jersey is £0.9m with a proposed dividend of £0.7m. Also our customer survey had over 1,200 more responses than last year with record equalling scores and 86% rating our delivery service overall as good or very good (higher than last year).

However against this, due to a number of issues, the quality of service dipped and our number of complaints per 50,000 items rose. We have already begun to address both of these issues in 2017.

Overall results also hide the dynamics of the business;

those parts that were successful and those that saw serious challenges. Our core postal business saw contribution fall

by almost £1m 2016 on 2015. In 2016 the postal business declined from being 60% of total revenue to 45%, and it continues to decline. Despite growth in packets and parcels overall postal volumes fell by a 9%. The impact of the vote on Brexit saw a weaker Sterling and cost the business over £1m as most of our invoices are directly affected by exchange rate movements.

Against this we saw strong performance from all other parts of our business including our retail network, international, digital services, logistics and philatelic.

What 2016 did highlight was the need to seek new profitable streams of business that would help us continue to provide

a non-subsidised and relevant service to the people and businesses of Jersey. To that end, our international business operating in the UK, USA and China saw a fivefold increase in revenue to more than £5m in 2016. We also invested in two companies that provide services that strengthen our proposition to businesses and consumers: Fraser Freight,

a premium European freight company; and Heathrow Import Clearance Services, a customs broker. Our investment continued in 2017 with an initial stake in our US partner, Global Express Parcels Services. We also continued to invest in our core businesses including our digital services business that has seen considerable profit growth over the last few years.

A key challenge of our new business streams is that they are less predictable, with greater competition and no certainty of success. Therefore, it is imperative that Jersey Post is able to operate commercially with the freedom and flexibility to succeed, whilst continuing to meet the terms of our Licence, renewed in 2016 for 5 years and monitored by CICRA, and respect the requirements of our customers and shareholder.

During 2016 we continued our investment programme begun in 2015 including:

The parcel sorter (installed in November 2015) processed over 3 million items in 2016 with 95%

of all inbound parcels sorted correctly first time. It now sorts Royal Mail, UK Mail, Special Delivery, Yodel and Parcelforce items;

The roll-out of hand held terminals to all delivery staff enabling us to track more parcels and, as a result, we have seen a reduction in the number of calls asking Where is my parcel? ;

Improvements to our website including the ability to apply for services online including Parcel Delivery Plus, Redelivery, SecureDrop, Redirection and Mail Retention;

As part of our investment in alternative delivery services we launched SecureDrop Signature giving Jersey Post the ability to leave items requiring a signature. We now have delivery preferences for 25% of the 45,000 addresses on the island including lockers, SecureDrop and Text & Collect. We also introduced the ability to have your parcels redelivered to Maufant, Don Street and St Aubin post offices;

New technology and service capability in our digital services business with the implementation of Harmonie so ware enabling clients to outsource everything from data management to print and despatch;

Introduced 15 electric vans (and 18 electric bicycles) to our fleet and in the first few months we have seen a dramatic decrease in the cost per mile to maintain and run these vehicles over the existing fleet. In November 2016 we won a Green Fleet award for this work.

This investment is part of our twin approach to invest in new profitable streams of business that enhance the services we can offer, as well as continuing to invest in the service in Jersey to sustain the universal service obligation and make it relevant for the 21st century.

Customer survey and quality of service

The outlook for 2017 and beyond continues to be mixed. Postal services continue to decline and we face significant competition in the parcels market. New rules are due to come into force in 2017 set by the Universal Postal Union that will have a big impact on what we pay and are paid, and as we are a net importer this could have a significant detrimental impact on us. Against this our new business streams are expected to continue to grow as we look to invest in improving our service offer during the year.

Customer feedback

We continue to listen to customer feedback and look at it in three ways:

1. What you tell us

This year was our sixth all-island customer survey and the number of responses was up by  +1,200 more than 1,200 to over 6,700. We recognise that we have made a number of changes to

reflect feedback from our customers: some that work and some that don t. Therefore it is  Increase in survey pleasing that our customers continue to rate highly the people that work for Jersey Post and  respondents

the service we provide.

Percentage of 2016 survey respondents that answered good or very good

95%

90%

85%

How do you 80% rate the service

provided by

your postman/ 75% postwoman?

How do you

70% rate the overall

delivery service? 65%

How do you

rate the post 60% office network?

2012 2013 2014 2015 2016 2017

When looking at those who rated our services poor or  The key areas customers identified as a priority were: very poor the results were 3% (2% last year) for post office  Keeping costs low ................................................... 48% network, 1% (1%) for our postmen and women and 3% (4%)  Consistency of delivery time .................................... 39% for our delivery service overall.  Early morning delivery ............................................. 13%

Year ended 31 December 2016

2. What our measurement tells us:

2016 has been a challenging year in terms quality of service for our mail services i.e. the time it takes to get mail items to and from certain destinations. For local to local mail, where we have end-to-end control, our overall service level was 96.4% delivered on time against a target of 96%. Indeed, for our parcels and logistics services that tend to be shipped via the UK, quality remains high.

However, for other destinations and origins where items

are flown, we rely heavily on Royal Mail. Towards the end of 2015 the aircra moved from Bournemouth to Stanstead. In 2016 there were 269 operational days and in that time there were 145 network failures (54%). On 120 of those occasions the aircra bulked out i.e. there was insufficient room on the aircra to get all the first class mail on the morning flight to Jersey and the overspill was either put on a trailer, or delayed until the following day. This resulted in over 3,000 cages

of mail not received on time. This is on top of delays due to weather or technical issues with the aircra . Royal Mail does not have a quality of service target for its traffic to Jersey and

it has been difficult to get Royal Mail to engage. However, following recent discussions with Royal Mail, it has now put on a larger flight which should ensure there are no more bulk outs and we have agreed other measures to tackle these issues.

The new aircra started on 28th March 2017.

The quality of service numbers in the table have not been adjusted for force majeure and events outside Jersey Post s control. Therefore they reflect more fully the service as seen from our customers, irrespective of whether the failure was due to weather, technical issues with the aircra , problems within the Royal Mail network or issues within Jersey Post.

We take the quality of service received by our customers very seriously and during 2017 we are taking a range of measures that should see a substantial improvement.

During 2016 we introduced daily service updates to keep customers abreast of any issues that may impact on deliveries.

http://www.jerseypost.com/service-updates/

2016 Quality of service - Jersey, Guernsey and the UK

99.8% 99% 99.4% 98.8% 99.8% 96.4% 96% 95.2% 97% 97% 97%

80.6% 82% 82% 80.8% 82%

71.6%

43.5%

Actual J+1 Target J+1 Actual J+3 Target J+3

Posted JE / Delivered JE Posted UK / Delivered JE Posted JE / Delivered UK Posted GY / Delivered JE Posted JE / Delivered GY

3. What issues our customers have raised during the year: The key areas of concern to Up until 2016 we had seen a steady improvement in the number  customers continued to be: of complaints and contacts per 50,000 items. In 2013 it was up  Delivery procedures

at 4.49 per 50,000 and in 2015 had fallen to 1.2. In 2016, it rose  SecureDrop failures

to 2.1 complaints per 50,000.  Redirection failures

The community

Jersey Post recognises it plays an important part in the life of Jersey, beyond that of just being its postal authority. To that end, it supports a local charity chosen by its staff. In 2016 that charity was Jersey Alzheimer s Association, and we exceeded £20,000 of support. We continue to support Team Jersey for the Island Games and wish it luck for the 2017 games in Gotland. We have also extended our support of Jersey representative sport by sponsoring Jersey Cricket at the recent World Cricket League Division 4 tournament in Los Angeles in October 2016. Our sponsorship enabled the team to participate in a training camp in Houston prior to the tournament. Subsequently we have given a grant to Jersey Cricket to support its longer term development.

As in previous years, we provide free Direct2Home door  We are also aware of our impact on the environment and drops to chosen charities and continue to provide help to  apart from our purchase of 15 electric vehicles we have Jersey Overseas Aid teams. Charities registered in Jersey are  changed all our lighting at Rue de Pres to LED, and provide able to benefit from a 5% discount on certain stamp prices  incentives for our staff to cycle to work. (www.jerseypost.com/charitypostage).

Our employees

As recognised by our customers in the survey, our staff continue to be our biggest asset.

We continued in 2016 with staff development funding (initially funded by Kevin Keen), provide pay advance schemes, private health and in 2016 added dental care.

We also launched a special fund administered by staff for use in cases of special hardship.

Summary

The challenges ahead

Jersey Post s business is changing with 55% of our revenue in 2016 coming from services other than our traditional post and parcels.

Also an increasing part of our business is outside of Jersey and the UK, including the USA and China. This means that for our customers,

in Jersey and across the world, we are their partner in the sending

and receiving of goods and communications. We do this through

a network of global partners, providing a solution that meets

the needs of our customers wherever they operate.

Tim Brown CEO 12 May 2017

Statement of Corporate Governance

Introduction

Jersey Post International Limited is committed to maintaining a high standard of Corporate Governance and follows the

best practise principles of the UK Corporate Governance Code issued by the Financial Reporting Council ( the Code ) where it is appropriate and practical to do so.

The Board

At the time of signing the financial statements the Board comprised of four Non-Executive and two Executive Directors and Alan Merry is the Chairman.

In accordance with the Company s Articles of Association, one-third of the numbers of Non-Executive Directors

are required to retire by rotation annually. Mike Liston permanently retired from the Board with effect from 1 April 2017. Alan Merry will retire by rotation at the AGM on

26 May 2017. Alan will be seeking reappointment and

a board resolution will be made at the AGM to re-appoint him to the Board as Chairman.

The Executive Directors are not subject to retirement by rotation but are subject to a period of notice of termination of employment, as are other members of the Company s senior management.

The Board is responsible to the Company s shareholder,

the States of Jersey Investments Limited, for the proper management of the Company. It meets regularly, normally five to six times per year, to agree and monitor strategy, review trading performance, the management of key risks and business plans, which include revenue and capital budgets for the next three years. Board papers are circulated prior to each meeting in order to facilitate informed discussion.

The Chairman, Chief Executive and Finance Director meet with the shareholder representative, the Treasury & Resources Minister, at least twice each year.

The following table sets out the number of meetings (including Committee meetings) held during the year under review and the number of meetings attended by each director:

Number of meetings attended

1 Mike Liston 4 3 2

(Chairman) Tim Brown 4 - - -

3

Donal Duff 4 2 1

(Chairman)

Performance Evaluation

The effectiveness of the Board is vital to the success of the Company. A self-assessment of the Board and its committees was undertaken at the Board meeting held on 3 March 2017.

Audit Committee

The Audit Committee is charged by the Board with responsibility for reviewing the annual report and financial statements and the strategic processes for risk, control and governance throughout the company. The Committee also advises the Board on the appointment of the external auditor and on the auditors remuneration, and monitors auditor independence. The company does not currently have an internal audit function, but at each meeting of the Audit Committee the need for internal audit is considered and individual reviews are commissioned from time to time.

The Audit Committee is chaired by Donal Duff. Members during the year were Mike Liston (resigned on 31 March 2017) and Alan Merry. The meetings are attended by invitation by the external auditor, the Finance Director, and, from time to time, other senior executives.

At its meeting on 28 April 2017, the Committee received and reviewed the company s 2016 annual report and financial statements. At this meeting the Committee also received a report from the external auditors summarising the results of their audit of the financial statements.

The Committee reviewed, in particular the material accounting and audit judgements which had been made in the financial statements. These were:

The going concern principle;

Taxation disclosures including accounting for deferred taxation;

Provisions release in relation to building dilapidations; Stamps in circulation;

UPU SDR accrual;

Acquisitions of Fraser Freight and HICS; and

Holiday pay.

The Audit Committee considered whether the 2016 annual report was fair, balanced and understandable and whether

it provided the necessary information for the shareholder

to assess the company s performance, business model and strategy. The Committee was satisfied that, taken as a whole, the annual report is fair, balanced and understandable.

The Audit Committee recommended the annual report and financial statements to the Board for approval at the board meeting on 12 May 2017.

Nomination Committee

The Nomination Committee is responsible for overseeing the selection and appointment process of Directors to the Board and making recommendations to the Board thereon. When considering future Board appointments the Nomination Committee pays due regard to issues of diversity, including gender.

Remuneration Committee

The Remuneration Committee has responsibility for

setting remuneration for the Executive Directors of the Company which is sufficient to attract, retain and motivate people of the quality required. No Director plays any role in the determination of his/her own remuneration. The Memorandum of Understanding with the Treasury and Resources Minister requires any changes to the level of remuneration paid to Non-Executive Directors to be agreed, in advance, by the Minister. The Committee also monitors the levels of remuneration for members of the Executive Management Team of the company.

The remuneration of the Directors of the Group for the financial year ended 31 December 2016 is set out on the next page, together with comparatives for 2015:

The remuneration of the Directors of the Group for the financial year ended 31 December 2016 is set out below, together with comparatives for 2015:

Tim Brown

195[2] 47 20 262 258* (appointed 01.07.14)

Liz Vince

28 26 3 57 150 (resigned 31.03.16)

Gary Carroll

- - - - 55*

(resigned 31.05.15)

Mike Liston 40 - - 40 40

*Part year

The Company offers an annual bonus scheme to all staff. There are three schemes:

Staff who are covered under collective bargaining;

Members of the Executive Team  

(excluding the Executive Directors in the above table);

All other staff.

The total amount paid out in bonuses relating to 2016 for the above three schemes was £625,000 (2015: £668,000).

During 2016, the company provided £23,447 (2015: £24,000) to the Sports and Social Club which organises events for staff, and the company also funded the CWU s local branch secretary post at a total cost of £17,560 (2015: £19,000).

Out of its total employees for Jersey Post (excluding recent acquisitions) 19.5% are women. Jersey Post continually reviews how it recruits, what contractual terms it offers and is committed to seeing a more balanced workforce. Whilst Jersey Post offers set salaries and wages for certain types of jobs (e.g. a Postal Operative is paid the same irrespective

of gender) the mix of jobs means that on average, female employees are paid 0.4% more than male employees. This includes the salaries of the Executive Directors.

Internal Control

The Board is responsible for ensuring that there are effective systems of internal control in place to reduce the risk of misstatement or loss, and to ensure that business objectives are met. These systems are designed to manage, rather than to eliminate, the risk of failure to achieve business objectives, and can only provide reasonable, and not absolute assurance against material misstatement or loss.

The key procedures which the Board has established to provide effective control are:

Board Reports

Key strategic decisions are taken at Board meetings following due debate and with the benefit of Board papers circulated

in advance. The risks associated with decisions are a primary consideration in the information presented and discussed by the Board. The Board discusses and approves the Group s strategic direction, plans, objectives, annual budgets and financial forecasts and the associated risks to achieving these.

Risk Management

Management is responsible for identifying the key risks to achieving their business objectives and ensuring that there are adequate controls in place to manage these, in line

with the risk appetite set by the Board and contained in the company s Risk Management Policy. Senior managers are invited to attend the Audit Committee s meetings to provide presentations on the key risks within their area of the business and how these are managed. Key strategic risks are identified as part of the annual budget process and reported to the board and the shareholder.

Budgetary Control

Detailed phased budgets are prepared at profit centre level and the Board receives monthly management accounts showing actual performance against these budgets, with explanations of any material variances.

Human Resources

The company endeavours to ensure that its employees are able to carry out their duties in a competent and professional manner through its commitment to staff training and development, including performance appraisal.

Tim Barnes Company Secretary 12 May 2017

Management Structure

Responsibility for operating the systems of internal control is delegated to management and directed and overseen by the Executive Team, chaired by the Chief Executive. This Team meets weekly. There are specific matters reserved for decision by the Board and these have been formally documented.

Directors Report

The Board of Directors of Jersey Post International Limited ( JPIL or the Company ) present their report on the affairs of JPIL and its subsidiaries ( the Group ), together with the consolidated financial statements for the year ended 31 December 2016.

Principal Activity

The principal activity of the Group is that of providing postal services to the Island of Jersey.

Going Concern

The Directors have produced forecasts for the next 12 months following the date of signing of these financial statements which have satisfied them that the Group will continue to be a going concern and be able to meet its liabilities as they fall due.

Disabled Employees

The Group gives full consideration to applications for employment from disabled persons where the requirements of the job can be adequately fulfilled by a disabled person. Where existing employees become disabled, it is the Group s policy, wherever practicable, to provide continuing employment under normal terms and conditions and to provide training, career development and promotion to disabled employees wherever appropriate.

The Directors are mindful of Article 8(2)(e) of the Postal  Board Remuneration

Services (Jersey) Law 2004 which states in so far as it is  Details of Directors remuneration are set out in the

consistent with paragraph (1), the Economic Development  Remuneration Committee Report on page 16.

Minister and the Jersey Competition Regulatory Authority

[JCRA] shall each have a duty in performing its functions under  Statement of Directors Responsibilities

the Law, to have regard to the need to ensure that persons  The Directors are responsible for preparing the Directors engaged in commercial activities connected with postal  Report and the consolidated financial statements in

services in Jersey, have sufficient financial and other resources  accordance with applicable law and regulations.

to conduct those activities . Accordingly the Directors have

adopted the going concern basis in preparing the financial  Companies (Jersey) Law 1991 requires the Directors to prepare statements. financial statements for each financial year.

Results

Details of the results for the year are set out in the Group consolidated income statement on page 20. A review of the Group s business during the year and an indication of the likely future development of the business are provided in the Chairman s Statement and the Strategic Report on pages 8-13.

Shareholdings

The 5 million £1 ordinary shares of JPIL are 100% owned by the States of Jersey who is the ultimate controlling party of the Company.

Dividends

An ordinary dividend of £721,800 will be recommended by the Directors for 2016 at the AGM to be held on 26 May 2017 (2015: £278,000). There was no special dividend paid in 2016 (2015: £2,000,000).

Employee Involvement

During the year, the policy of providing employees with information about the Group was continued using a variety of media through which employees were encouraged to present their suggestions and views on the Group s performance.

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 of the profit or loss of the Group for that period. In preparing these financial statements, the Directors are required to:

select suitable accounting policies and then apply

them consistently;

make judgements and accounting estimates that

are reasonable and prudent;

state whether applicable 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 company will continue in business.

The Directors confirm they have complied with all the above requirements in preparing the consolidated financial statements.

This business review includes extracts from the audited financial statements which contains an unqualified audit report.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group s transactions, and disclose with reasonable accuracy at any time the financial position of the Group and to enable them to ensure that the financial statements comply with the Companies (Jersey) Law 1991. They are also responsible for safeguarding the assets of the Group, and hence for taking reasonable steps for the prevention and detection of fraud, error and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Group s website. Legislation in Jersey governing the preparation and dissemination of the financial statements may differ from legislation in other jurisdictions.

So far as the Directors are aware, there is no relevant audit information of which the Group s auditors are unaware, and each Director has taken all the steps that he or she ought to have taken as a director in order to make himself or herself aware of any relevant audit information, and to establish that the Group s auditors are aware of that information.

Viability Statement

The Code requires that the Directors of Jersey Post International Limited should explain how they have assessed the prospects of the company, over what period they have done so and why they consider that period to be appropriate, and in so doing express a view about the long term viability of the company.

The Strategic Report outlines the main areas of risk, the key one being the decline in its core letters market over the

last 10 years and the forecast that this will continue in the foreseeable future. Therefore, the Board has approved a strategy that provides for the development of new profitable revenue streams, at the same time investing in its core to ensure it continues to deliver a quality service at a profit. Without these new revenue streams, Jersey Post would be in

a period of managed decline that could ultimately lead to an unsustainable Universal Service Obligation in Jersey.

The Board considers that the strategy it has approved,

coupled with the track record of the business in dealing with the historic 60% loss of letter volume and the loss of fulfilment business, gives it a reasonable expectation that the company will be able to continue in operation and meet its liabilities, including its Universal Service Obligation over the three year period ending 31 December 2019.

Annual General Meeting

The AGM will be held at the States Treasury, Cyril le Marquand House, St Helier on 26 May 2017.

Directors

The Directors of the Company are listed on pages 4-5.

This statement was approved by the Board of Directors of Jersey Post International Limited on 12 May 2017 and was signed on their behalf by:

Tim Barnes Company Secretary 12 May 2017

Jersey Post conducts a rigorous strategy and budget setting process. Whilst each Board meeting reviews the wider market, strategic risks and opportunities, it dedicates at

least one day a year to review where the business is, what challenges it is facing, what new opportunities and risks present themselves and identifying potential key areas of concern. From this, it reviews its existing strategy, amends where necessary and confirms the direction of the business for the next three to five years. From this, a business plan is developed looking three years out with detailed planning for the first year. This plan includes a review of strategic risks and opportunities. The plan also provides indicative forecasts for years four and five. The Board presents the outcomes of this process to its shareholder and provides half yearly updates. Given the dynamics of the market Jersey Post operates in,

the Board considers that the timescale is appropriate for the business.

Consolidated Income Statement

The basis of preparation of these financial statements is set out  The above results are derived from continuing activities, on page 24, and the notes on page 24-45 form an integral  including business acquisitions made in the year.

part of these financial statements.

Consolidated Statement of Comprehensive Income

Consolidated Statement of Financial Position

The basis of preparation of these financial statements is set out  The financial statements on pages 20 to 45 were authorised on page 24, and the notes on pages 24-45 form an integral  and approved for issue by the Board of Directors on 12 May part of these financial statements. 2017 and were signed on its behalf by:-

2015 comparatives have been restated to disclose the  Tim Brown

deferred tax due a er one year, see note 16.  Chief Executive Officer

Consolidated Statement of Changes in Equity

Share  Retained

Year Ended 31 December Note Capital Earnings Total

£ 000 £ 000 £ 000

Balance as at 1 January 2016 5,000 14,780 19,780 Total comprehensive income for the year - 1,488 1,488 Dividends 23 -  (278)  (278) Balance as at 31 December 2016 5,000 15,990 20,990

Share  Retained

Year Ended 31 December Note Capital Earnings Total

£ 000 £ 000 £ 000

Balance as at 1 January 2015 5,000 10,255 15,255 Total comprehensive income for the year - 1,502 1,502 Transfer deficit on defined benefit scheme 20 - 5,200 5,200 Dividends 23 - (2,177) (2,177) Balance as at 31 December 2015 5,000 14,780 19,780

Consolidated Statement of Cash Flows

2015 comparatives have been restated to disclose tax paid and the purchase and disposal of investments separately on the face of the consolidated statement of cash flows.

Notes to the Financial Statements

1. Accounting Policies

1. General Information

Jersey Post International Limited provides a postal service both  maintenance are charged to profit or loss during the period in on the Island of Jersey and through an international network  which they are incurred.

worldwide.

In accordance with the Postal Services (Transfer) (Jersey) The Company is incorporated and domiciled in Jersey. The  Regulations 2006 which regulated the transfer of the assets, address of its registered office is Postal Headquarters, La Rue  liabilities and rights of Jersey Post to Jersey Post International Grellier, La Rue Des Pres Trading Estate, St Saviour, Jersey JE2  Limited at 30 June 2006, the freehold land and buildings were 7QS. re-valued on an existing use basis prior to their purchase by

the Group.

2. Basis of Consolidation

The consolidated financial statements present the results

of Jersey Post International Limited and its subsidiaries ( the Group ) as if they formed a single entity. Intercompany transactions and balances between group companies are therefore eliminated in full.

3. Going Concern

The Directors have produced forecasts for the next 12 months following the date of signing of these financial statements which have satisfied them that the Group will continue to be a going concern and be able to meet its liabilities as and when they fall due.

The cost of all other tangible fixed assets is their purchase cost, together with any incidental costs on acquisition. Tangible fixed assets with a cost of less than £1,000 are not capitalised.

Depreciation is calculated so as to write off the cost of tangible fixed assets on a straight-line basis over the expected useful economic lives of the assets concerned. Tangible fixed assets are not depreciated until they are available for use.

The lives assigned to major categories of tangible fixed assets are:

The Directors are also mindful of Article 8(2)(e) of the Postal  Land

Services (Jersey) Law 2004 which states in so far as it is  Not depreciated

consistent with paragraph (1), the Economic Development

Minister and the Jersey Competition Regulatory Authority  Freehold buildings

[JCRA] shall each have a duty in performing its functions under  15 30 years

the Law, to have regard to the need to ensure that persons

engaged in commercial activities connected with postal  Computer hardware and so ware services in Jersey, have sufficient financial and other resources  1 5 years

to conduct those activities . Accordingly the Directors have

adopted the going concern basis in preparing the financial  Plant, vehicles and equipment statements. 3 - 10 years

4. Tangible Assets

On a continuing use basis within the business, tangible assets are stated at cost less accumulated depreciation and accumulated impairment losses. Cost includes the original purchase price and expenditure that is directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.

The group adds to the carrying amount of an item of tangible assets the cost of replacing part of such an item when that cost is incurred if the replacement part is expected to provide incremental future benefits to the group. The carrying amount of the replaced part is derecognised. Repairs and

Improvements to leasehold property Remaining lengthof the lease

The assets residual values, useful lives and depreciation methods are reviewed, and adjusted at the end of each accounting period if appropriate, if there is an indication of a significant change since the last reporting date. The carrying value of tangible fixed assets is reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. An impairment loss is recognised for the amount by which the asset s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset s fair value less costs to sell and value in use.

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within administrative expenses in the income statement.

5. Intangible Assets

Intangible assets are stated at cost less accumulated amortisation and accumulated impairment losses.

Intangible assets acquired separately from the business are capitalised at cost. Assets are amortised on a straight line basis over their estimated useful life.

The lives assigned to categories of intangible fixed assets are:

Computer so ware 3 - 10 years

Amortisation is charged to Administrative expenses.

The carrying value of intangible assets is reviewed for impairment when events or circumstances indicate that the carrying value may not be recoverable. An impairment loss is recognised for the amount by which the asset s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset s fair value less costs to sell and value in use.

Where web sites are expected to generate future revenues

in excess of the costs of developing those web sites, expenditure on the functionality of the web site is capitalised and treated as an intangible fixed asset. Expenditure incurred on maintaining web sites and expenditure incurred on developing web sites used only for advertising and promotional purposes are written off as incurred.

6. Goodwill

Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value over the net identifiable assets and liabilities acquired. Section 19 of FRS 102 states that goodwill is considered to have a finite useful life and that management needs to make an estimate of the useful life of goodwill.

7. Cash and Cash Equivalents

Cash and cash equivalents includes cash, deposits and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

8. Financial Instruments

The Group has chosen to adopt Sections 11 and 12 of FRS 102 in respect of financial instruments.

Financial Assets

Basic financial assets, including trade and other receivables, cash and bank balances are initially recognised at the transaction price. Such assets are subsequently carried

at amortised cost using the effective interest method and assessed for impairment at each reporting date.

Other financial assets, including investments in equity instruments where not subsidiaries, associates or joint ventures, are initially measured at fair value, which is normally the transaction price. Such assets are subsequently carried

at fair value and the changes in fair value are recognised in income statement.

Financial assets are derecognised when (a) the contractual rights to the cash flows from the asset expire or are settled, or (b) substantially all the risks and rewards of the ownership of the asset are transferred to another party or (c) control of the asset has been transferred to another party who has the practical ability to unilaterally sell the asset to an unrelated third party without imposing additional restriction.

Financial Liabilities

Basic financial liabilities, including trade and other payables, are initially recognised at transaction price.

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less. Trade payables are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.

Derivatives, including forward foreign exchange contracts, are not basic financial instruments. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. Changes in the fair value of derivatives are recognised in profit or loss in finance costs or income as appropriate.

Financial liabilities are derecognised when the liability is extinguished, that is when the contractual obligation is discharged, cancelled or expires.

Notes to the Financial Statements Continued 1. Accounting Policies (continued)

Hedge Accounting

From time to time the Group enters into forward foreign currency contracts to manage its exposure to foreign exchange currency fluctuations. The cash flow hedged derivatives are measured at fair value at each reporting date. To the extent the hedge is effective, movements in fair value are recognised in other comprehensive income and any ineffective portions of those movements are recognised in the profit or loss for the period. At the year end the Group had no outstanding forward contracts.

Offsetting

Financial assets and liabilities are offset and the net amounts presented in the financial statement when there is an enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise the asset and settle to liability simultaneously.

9. Inventories

Inventories are stated at the lower of cost and net realisable value. Provisions are made where necessary for obsolete, slow-moving and defective inventories. Costs are measured on purchase price with the expense being recognised in the income statement when the inventory item is sold.

10. Provision for Liabilities

Provisions are recognised when the Group has an obligation (legal or constructive) arising from a past event and the costs to settle the obligation are both probable and able to be reliably measured.

11. Foreign Currencies

Items included in the financial statements are measured using the currency of the primary economic environment in which the Group operates ( the functional currency ). The financial statements are therefore presented in pound sterling which is the group s functional and presentation currency.

Transactions in foreign currencies are translated into pound sterling at the exchange rate ruling when the transaction was entered into. Monetary assets and liabilities expressed in foreign currencies are translated to sterling at the exchange rates ruling at the reporting date. Foreign currency gains and losses are taken to the income statement.

Foreign exchange gains and losses resulting from the settlement of trading transactions in foreign currencies are recognised in Cost of sales in the consolidated income statement. Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are shown on

the face of the consolidated income statement as Foreign exchange gain/(loss) .

12. Turnover

Group turnover is measured at the fair value of the consideration received or receivable for goods and services supplied for all group companies, net of value added and sales taxes, less post office boxes and business reply licences invoiced in advance and unexpended credit on franking meters. The sale of stamps is based on the cash received and no provision is made for services to be provided in respect of stamps in circulation as the Directors consider this to

be immaterial. Included within Turnover and Cost of Sales are customs clearance charges incurred and recharged to customers of Jersey Post.

13. Other Non-Operating Income

Other non-operating income represents the value of rental income received and receivable from the lease of a property recognised over the life of the rental agreement.

14. Administrative Expenses

Included within administrative expenses is, amongst other costs, the GST expense, support services staff costs and marketing and distribution costs.

Administrative expenses are recognised on an accruals basis.

15. Taxation

Taxation expense for the period comprises current and deferred tax recognised in the reporting period. Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity.

Current tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted by the reporting date.

Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the reporting date where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the reporting date. Timing differences

are differences between the Group s taxable profits and its results as stated in the financial statements that arise from the inclusion of gains and losses in tax assessments in periods different from those in which they are recognised in the financial statements.

A net deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted. Deferred tax is measured at the average tax rates that are expected

to apply in the periods in which the timing differences are expected to reverse based on tax rates and laws that have

been enacted or substantively enacted by the reporting date. Deferred tax is measured on a non-discounted basis.

16. Pension Costs

The Group operates only defined contribution schemes, though up to the 30 September 2015 it did operate a defined benefit scheme. Please refer to note 20 for further details.

Defined Benefit

The Group was party to a defined benefit plan for certain employees. A defined benefit plan defines the pension benefit that employee will receive on retirement, usually dependent upon several factors including age, length of service and remuneration.

Operating profit was charged with the cost of providing pension benefits earned during the year. The expected

return on pension scheme assets less the interest on pension scheme liabilities is shown as a finance cost within the income statement.

Actuarial gains and losses arising from the difference between the actual and expected returns on pension scheme assets, experienced gains and losses on pension scheme liabilities and the effects of changes in demographics and financial assumptions were included in the consolidated statement of comprehensive income

Pension scheme liabilities were measured using the projected unit credit method, discounted at the current rate of return on a high quality corporate bond of equivalent term and currency to the liability. Recoverable pension scheme surpluses and pension scheme deficits were recognised in the statement of financial position.

Defined Contribution

Both the Group and employees pay contributions into independently administered funds. The cost of providing these benefits, recognised in the income statement, comprises the amount of contributions payable to the scheme in respect of the year.

17. Operating Leases

Rentals receivable and payable under operating leases are charged in the income statement on a straight line basis over the lease term.

18. Research and Development

Expenditure on research and development is written off in the period in which it is incurred.

19. Related Parties

The Group discloses transactions with related parties which are not wholly owned within the same Group. Where appropriate, transactions of a similar nature are aggregated unless, separate disclosure is necessary to understand the effect of the transactions on the Group financial statements.

20. Critical Judgements

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, differ from the actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below:

Goodwill and Acquisition Costs

The fair value of assets acquired of subsidiaries is shown as net book value at acquisition. The calculation of the deferred consideration involved an estimation of future profits to be generated over a number of years.

Impairment of Assets

On at least an annual basis and when indicators of impairment are present, a review of impairment is conducted on property, plant and equipment, intangible assets as well as any debt owed to the Group. When considering whether impairment

is required reference is made to the current value of the asset, useful life of the asset and age of the debt.

International Accruals

Within the creditor figure the Group maintains an accrual in relation to its international trade for amounts owed to other administrations within the Universal Postal Union (UPU). This accrual is calculated in accordance with the Letter Post Article 29 for Terminal Dues. The UPU guidelines specifically states The debtor designated operator will not be obliged to

accept CN61 detailed accounts that are not sent to it within 10 months of the end of the year concerned (RL 239.5) . Jersey Post has a policy to release provisions for charges that have not been invoiced 2 calendar years a er the year the provision was made, unless the Company is in negotiations.

Notes to the Financial Statements Continued

1. Accounting Policies (continued)

Deferred Tax Provisions

This has been recognised as a taxation expense in our Income  The Group maintained creditor balances at the prior year end Statement in relation to fixed asset timing differences. regarding an onerous lease held and dilapidation provisions

as financial liabilities. There is no such provision in 2016.

2. Operating Profit for the year

3. Staff costs

Employees

The average number of full time equivalent staff (FTE) (including Executive Directors) employed by the Group during the year was:

2015 has been restated to disclose FTE, as this is deemed more appropriate.

Employees

The Directors emoluments were as follows:

Highest paid director

The highest paid director s emoluments were as follows:

1 Prior year now includes all benefits.

Notes to the Financial Statements Continued

3. Staff costs (continued)

Key Management Compensation

Key management includes the Directors and members of senior management.

The compensation paid or payable to key management for employee s services is shown below:

2016 2015

£ 000 £ 000

Salaries and other short-term benefits 646 770 Post-employment benefits  56  51 Total 702 821

4. Interest and Dividends Receivable

5. Net movement on Investments

2016 2015

£ 000 £ 000

Net realised gain 302 42 Unrealised gain/(loss)  46 (99) Net movement on Investments 348  (57)

1 For 2016 this includes amounts paid into the States of Jersey PECR scheme, see note 20.

5. Net movement on Investments (continued)

6. Other finance costs

7. Taxation

Notes to the Financial Statements Continued

7. Taxation (continued)

Income tax expense computations are based on the jurisdictions in which profits were earned at the prevailing rates of tax in the respective jurisdictions.

Jersey Post International Limited is subject to Jersey income tax at the standard rate of 0% (2015: 0%). The majority of the Group s profits are reported by Jersey Post Limited, a subsidiary of Jersey Post International Limited. Jersey Post Limited is subject to Jersey income tax at the rate of 20% (2015: 20%).

8. Tangible Assets

Net book value

At 31 December 2016 6,169 3 4,332 10,504 At 31 December 2015 5,468 - 4,622 10,090

All so ware has been reclassified from tangible to intangible assets from the start of the year.

Notes to the Financial Statements Continued

9. Intangible Assets

The useful life of the so ware is based on its expected utilisation by the Group.

All so ware has been reclassified from tangible to intangible assets from the start of the year.

10. Goodwill

11. Inventories

Notes to the Financial Statements Continued

12. Debtors