2005 annual report and Form 20-FNotes to the consolidated cash flow statements
O 24 NET CASH FROM OPERATING ACTIVITIES: 984 MILLION (2004: 708)
In 2005, net cash provided by operating activities was €984 million, which is an increase of 39% compared to 2004 (€708 million). Profit before income taxes contributed €1,151 million or €1,471 million if adjusted for the non-cash impact of depreciation, amortisation and impairments, an increase of €72 million or 5% compared to last year (€1,399 million).
The changes in pension liabilities of €123 million (2004: 254) reflects the total non-cash charges for the defined benefit pension schemes of €141 million, offset by our total cash contributions of €166 million to various pension funds, the majority of which for our Dutch employees who fall under our collective labour agreement, plus our cash contributions of €98 million for pensions which fall under the transitional plan of our Dutch collective labour agreement and which are directly paid by TNT (see note 10 to our consolidated financial statements). In total the cash contributions are €168 million lower than last year, mainly due to contributions of €142 million related to the Personal Seniors Arrangement in 2004 and due to €32 million lower contributions as prescribed by the minimum funding requirements of De Nederlandsche Bank (DNB), which amounted to €59 million in 2005 (2004: 91).
The non-cash impact of €52 million from other provisions included provisions related to employee benefits mainly in express, provisions taken for the uninsured part of the damage caused by major fires in three different warehouses in the United States, Spain and the United Kingdom, increased provisions for employer liability in the United Kingdom and reorganisation provisions mainly in mail.
Working capital increased by €180 million in 2005 as compared to a decrease of €21 million in 2004. Most of the increase of the accounts receivable position related to an increase of trade receivables that moved unfavourably by€165 million (2004: 77), due to a combination of additional revenue and increased debtor days. Trade payables negatively impacted the cash flow by €77 million as a result of a decrease of creditor days compared to last year. Other current liabilities moved favourably by €66 million, including higher accruals for subcontractors and claims.
Interest and similar expenses amounted to €121 million, including non-cash hedge results of €21 million. The cash outflow for interest paid totalled €84 million. Income taxes paid was €130 million (2004: 404). The net amount of income taxes paid included €162 million repayments by the Dutch tax authority of taxes over previous years after it was concluded that preliminary payments were too high and a decrease of the Dutch statutory tax rate from 34.5% in 2004 to 31.5% in 2005.
O 25 NET CASH USED IN INVESTING ACTIVITIES: (265) MILLION (2004: -268)
In 2005, the total payments for acquisitions of group companies amounted to €36 million and no cash was acquired as part of the total acquisitions. Most acquisitions took place in our mail division (€30 million), the largest being Euro Mail B.V. (€18 million), the remaining shares in Circular Distributors Limited (€6 million) and the assets of Rheinkurier GmbH (€3 million). Express acquired for a total amount of €6 million, mainly related to Door-to-Door d.o.o. and Asinus d.o.o. and the remaining share of our business in Israel. During 2005 all acquisitions were fully discharged by means of cash. The investments in associated companies primarily related to additional capital contributions in one of our associates of €13 million.
During 2005, we disposed our interest in Global Collect B.V. for a negative amount of €5 million, which consists of the total consideration received of €4 million and €9 million cash that was divested with the disposal. During 2005 all proceeds or payments related to disposals were in cash. The disposal of associated companies related to Postal Preference Service Limited in the mail segment and Mistral Air in the express segment.
In 2005, capital expenditures on property, plant and equipment amounted to €233 million (2004: 225). Of this amount, €80 million (2004: 75) related to mail, €143 million (2004: 144) to express (including freight management of €3 million for 2005 and €1 million for 2004) and €10 million (2004: 6) to non-allocated. The capital expenditures on intangible assets of€80 million (2004: 59) mostly related to software. In 2005, capital expenditures were funded primarily by cash generated from operations.
Proceeds from the sale of property, plant and equipment in 2005 totalled €43 million (2004: 21), which mainly related to several buildings from TNT Real Estate B.V. and TNT Real Estate Development B.V. (€23 million) and buildings and equipment from the joint venture Postkantoren B.V. (€7 million) in the mail segment and equipment in our express operations in the United Kingdom (€4 million).
Capital expenditure on property, plant and equipment and other intangible assets by our mail division totalled €102 million in 2005, which was an increase of 4% compared to 2004 (€98 million). The main capital expenditures in 2005 related to machinery (€24 million), software (€19 million), hardware (€9 million) and housing (€17 million). The remaining €33 million of capital expenditure related to various smaller projects, most of which were less than €1 million individually and included building refurbishments mainly in the Netherlands, renewal of IT equipment and software, operational equipment and various other capital expenditures.
Significant investments were made in the sorting and distribution process, with a total amount of €19 million invested in sequence sorting machines and sequence sorting software and €10 million invested in housing following the restructuring of operations in the Netherlands.
Capital expenditure on property, plant and equipment and other intangible assets by our express division (including freight management) totalled €197 million in 2005, which was an increase of 9% compared to 2004 (€180 million).
During 2005, capital expenditures on other intangible assets totalled €54 million (2004: 36) and related primarily to the development of financial systems (e-back office) software (€22 million) and further enhancements to our international shared systems.
Some of the more significant express capital expenditures included fleet replacements in the United Kingdom (€12 million) and Australia (€5 million), the expansion of the air hub in Liège (€10 million) and the road hub in Duiven (€7 million), depots in Stockholm (€5 million) and Preston (€4 million) and the remaining investments in the new headoffice for France in Lyon (€3 million). Capital expenditures on property, plant and equipment and other intangible assets by our our freight management operations amounted to €3 million (2004: 8).
The net cash generated by other changes in financial fixed assets totalled €18 million (2004: 164) and is mainly attributable to settling net balances relating to our disposal of Global Collect B.V. Interest and similar income amounted to €115 million of which €72 million was related to non-cash interest from our discontinued logistics business. The cash inflow for interest received totalled €40 million. No dividends were received during 2005.
O 26 NET CASH USED IN FINANCING ACTIVITIES: (779) MILLION (2004: -284)
A final cash dividend for 2004 amounting to €168 million or €0.37 per ordinary share and a cash interim dividend for 2005 of €100 million or €0.22 per ordinary share were paid in 2005.
In 2005, a cash outflow of €259 million has been included as consideration for the repurchase of 13.1 million shares from the State of the Netherlands. These shares were delivered by the State of the Netherlands as a result of a purchase agreement signed in September 2004. Under our share buy back programme announced on 6 December 2005 we purchased 9,020,000 of our ordinary shares for an amount of €231 million. As at 31 December 2005, we paid €214 million relating to 8,372,000 shares with the remainder of the amount being paid in January 2006.
An amount of €16 million was received as a result of the exercise of options and share grants.
Movements in long term borrowings resulted in a net cash inflow of €29 million (2004: outflow of 62).
The total proceeds from long term borrowing of €35 million (2004: 16) consist mainly of a €14 million additional issuance of the 3.875% 2015 Eurobond, a €13 million increase in bank loans, and a €7 million (2004: 11) non-cash income from finance leases. A total of €6 million (2004: 78) of repayments to long term borrowings related, amongst others to a €4 million (2004: 9) scheduled payment on aircraft leases and other leases and to a €2 million (2004: 69) of repayments of bank loans. The 2004 repayments of bank loans, mainly relates to the bank loans granted to TNT Freight Management (€53 million) and to various other movements in non-interest bearing liabilities.
Movements in short term liabilities resulted in a net cash outflow of €55 million (2004: 48). The total repayments to short term borrowings mainly relates to repayments on aircraft leases and other leases of €47 million and a cash outflow of €20 million (2004: 8) regarding hedge transactions partly offset by cash inflow relating to short term liabilities of €14 million (2004: 8). In 2004 short term liabilities also decreased due to the repayment of short term bank loans in TNT Freight Management of €20 million and because of various other repayments of loans within our express and mail divisions.