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The Road to Transaction

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

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The Road to Transaction

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  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 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. Accelerated modernisation “The company urgently needs commercial confidence, capital and corporate experienceto modernise quickly and effectively.” Improvedindustrialrelations “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 capitalParliamentary 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 2013/14 June 2011 March 2012 • 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 • Historical pension deficit transferred to HMG • New regulator: Ofcom • New regulatory framework • Separation from POL • New long term agreements • 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

  6. 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

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

  8. 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

  9. 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

  10. 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

  11. 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 Many things will remain the same

  12. 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 Many things will remain the same Some will be different • 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

  13. 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 What we need from you What we will give you • 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

  14. 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

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