Additions in 2005 include €26 million (2004: 169) of goodwill arising from the acquisition of interests in newly acquired group companies and from extending our interests in group companies acquired in prior years. Our acquisitions in 2005 have generally centred on addressing our long term strategic plans by, amongst others, the direct marketing mailing activities for small and medium-sized enterprises.

Other non-current assets include an amount of approximately €6 million relating to separately identified intangible assets with respect to 2005 acquisitions.

Pro-forma results

The following represents the pro-forma results of TNT for 2005 and 2004 as though the acquisitions had taken place on 1 January 2004. These pro-forma results do not necessarily reflect the results that would have arisen had these acquisitions actually taken place on 1 January 2004, nor are they necessarily indicative of the future performance of TNT. This calculation also includes the impact of amortisation.

O 28 COMMITMENTS AND CONTINGENCIES
(No corresponding financial statement number)

At 31 December 2005
	2005	2004
Commitments relating to:
Financial guarantees	191	240
Operating guarantees	76	110
Rent and operating lease	1,251	1,675
Capital expenditure	16	33
Repurchases own shares	769	259
Purchase commitments	100	84
(in € millions)

Commitments and contingencies as at 31 December 2005 related to our discontinued logistics business amounts to €706 million. See further analysis in note 8.

Of the total commitments indicated above, €359 million are of a short term nature (2004: 593).

Financial and operating guarantees

Total financial guarantees at 31 December 2005 were €267 million (2004: 350) of which €99 million (2004: 164) amounted to corporate guarantees. These guarantees were mainly issued in connection with our obligations under lease contracts, custom duty deferment and local credit lines. The increase of corporate guarantees to banks mainly related to local credit lines.

Furthermore, banks and other financial institutions have issued guarantees to cover obligations of group companies up to an amount of €147 million (2004: 127). These guarantees were mainly issued in connection with our obligations under lease contracts, customs duty deferment and local credit lines. The obligations under the guarantees issued by banks and other financial institutions have been secured by our company or by our subsidiaries. The €21 million (2004: 59) of remaining guarantees in 2005 relates to bank guarantees issued locally by group companies.

As at 31 December 2005, we repurchased 9,020,000 of our ordinary shares for a total amount of €231 million. Note 40 includes a table summarising our repurchases during December 2005. Under this repurchase programme we anticipate purchasing additional shares with a value of €769 million. It is our intention to cancel the ordinary shares and intend to request for such cancellation to be approved by our shareholders.

On 7 April 2005, TNT’s shareholders’ meeting mandated the Board of Management to repurchase ordinary shares for a period of eighteen months. Given the share buy back value of €1.0 billion, the approximate number of ordinary shares to be repurchased under the repurchase programme is approximately 42.6 million, calculated on the basis of the last trade prior to commencement of the repurchase programme.

Purchase commitments

At 31 December 2005 we had unconditional purchase commitments of €100 million (2004: 84) which were primarily related to various service and maintenance contracts. These contracts for service and maintenance relate primarily to information technology, security, salary registration, cleaning and aircraft.

Contingent tax liabilities

Multinational groups the size of TNT are exposed to varying degrees of uncertainty related to tax planning and regulatory reviews and audits. We account for our income taxes on the basis of our own internal analyses, supported by external advice. We continually monitor our global tax position, and whenever uncertainties arise, we assess the potential consequences and either accrue the liability or disclose a contingent liability in our financial statements, depending on the strength of our position and the resulting risk of loss.

In 2005, TNT continued to investigate and analyse its global tax position. As a result we currently estimate the realistic range to reflect our total contingent liability in this regard is between €150 million and €550 million.

In early 2004, our audit committee, on behalf of our Supervisory Board, conducted an independent investigation regarding representations made to the UK tax authorities and to our independent auditors, PricewaterhouseCoopers, with respect to certain UK tax matters originally arising in the late 1990s relating to one of our UK subsidiaries. The 2004 investigation, concluded that not all relevant details in connection with these tax matters were adequately disclosed to the UK tax authorities and PricewaterhouseCoopers. In addition to this investigation, in 2004 our audit committee, with the assistance of external legal and tax advisors, conducted a review of other UK tax matters that arose from the same period. In August 2004, we submitted a report to the UK tax authorities pursuant to a procedure under UK law designed to ensure full disclosure of all relevant information to the UK tax authorities. In the first quarter of 2005, we reached a settlement with the UK tax authorities in relation to those matters without any further negative impact on our tax position in 2005.

From the extensive review to date of our global tax position, on the basis of the facts and circumstances as currently known and advice received from external advisors, we currently believe that it is unlikely that we will incur an additional liability beyond what we have accrued to date, and thus we have not made any further provision in connection with these matters in our financial statements for 2005. To date no assessments relating to the items under investigation or analysis have been raised, and it is difficult to assess if and when, and if so, for what amount, any particular assessment might be raised. Our interpretation of past facts and circumstances and relevant tax laws and regulations may be open to challenge. However, our positions have been and are supported by strong external specialist advice, both contemporaneous and present, on the basis of which we have reached our estimates.

Although we currently believe that it is unlikely that we will incur an additional liability beyond what we have accrued to date, we estimate that the realistic range to reflect our total contingent liability in this regard, including potential penalties and interest, is between €150 million and €550 million. This estimate incorporates our current assessment of the matters underlying the contingent liability disclosure in our audited financial statements for 2004. This estimate is based on a probability-weighted assessment of our estimated total theoretical liability. It has been tested against possible settlement negotiation scenarios. Altogether this estimate represents 25-30% of the non-probability weighted estimated theoretical maximum liability -in the highly unrealistic scenario where all of our tax positions under investigation or analysis were successfully challenged, we and all relevant tax authorities were unable to reach any settlement whatsoever, and all of our positions were rejected by all relevant courts. We believe this is highly unlikely.

Our estimate of the realistic range of the total contingent liability of €150-€550 million involves a series of complex judgments about past and future events and relies on estimates and assumptions. Although we believe that the estimates and assumptions supporting our assessments are reasonable and are supported by external advice, our ultimate liability in connection with these matters will depend upon the assessments raised, the result of any negotiations with the relevant tax authorities and the outcome of any related litigation.

Contingent legal liabilities

ORDINARY COURSE LITIGATION
We are involved in several legal proceedings relating to the normal conduct of our business. We do not expect any liability arising from any of these legal proceedings to have a material effect on our results of operations, liquidity, capital resources or financial position. We believe we have provided for all probable liabilities deriving from the normal course of business.

The plaintiffs have appealed this decision to the Belgian supreme court. The defendants, including TNT, have filed their response briefs with the same court. The final decision is not expected before the first half of 2006 at the earliest. The arguments developed in the appeal are technical, since the supreme court may only examine pure points of law or procedural items, and not facts. Each of the legal arguments invoked before the supreme court were already extensively developed before the Liège court of appeal, which rejected each and all of them with a substantiated legal reasoning in its decision of June 2004. A successful appeal would entail that the matter be sent to another Belgian court of appeal for a new exchange of briefs, pleadings and ruling. The outcome of this case is hard to predict.

O 30 JOINT VENTURES
(No corresponding financial statement number)

We account for joint ventures in which we and another party have equal control according to the proportionate consolidation method. Key pro rata information regarding those joint ventures in which we have joint decisive influence over operations is set forth below and includes balances at 50%:

Our only significant joint venture as at 31 December 2005 is the 50% interest in Postkantoren B.V. with Postbank N.V. to operate post offices in the Netherlands.

Our 50% interest in a joint venture with Shanghai Automotive Industry Sales Corporation called Anji–TNT Automotive Logistics Company Limited is part of the discontinued logistics business.

O 31 RELATED PARTY WITH THE STATE OF THE NETHERLANDS
(No corresponding financial statement number)

The State of the Netherlands as shareholder

On 29 September 2004, we announced that the State of the Netherlands sold a total of 77.7 million ordinary shares in our outstanding share capital, representing approximately 16% in our company. By the sale and transfer the State of the Netherlands reduced its ownership in our capital from 34.8% to 18.6% and it has been further reduced to approximately 10% in July 2005 (see below). We repurchased 20.7 million of the total amount of shares sold by the State of the Netherlands. Transfer of the repurchased ordinary shares took place in two tranches. The first tranche of 7.6 million ordinary shares was transferred to us on 4 October 2004. The transfer of the remaining 13.1 million ordinary shares was completed on 5 January 2005. On 11 July 2005, the State of the Netherlands sold 43.3 million ordinary shares in a placement to ABN Amro Holding N.V. and Citigroup Inc. The sale by the State of the Netherlands reduced the holding of the State of the Netherlands in our company to approximately 10% as at 31 December 2005.

Special share

The State of the Netherlands holds a special share that gives it the right to approve decisions that lead to fundamental changes in our group structure. The State of the Netherlands has committed itself to exercising the rights attached to the special share only to safeguard the general interest in having an efficiently operating postal system in the Netherlands and also to protect its financial interest as a shareholder. The State of the Netherlands may not exercise its special share to protect us from unwanted shareholder influence. The State of the Netherlands may not transfer or encumber the special share without the approval of our Board of Management and Supervisory Board. Ownership of the special share gives the State of the Netherlands the right to approve certain actions, including:

• issuing shares in our capital,
• restrictions on or exclusions of the preemptive rights of holders of our ordinary shares,
• mergers, demergers and dissolutions with respect to us and Royal TPG Post B.V.,
• certain capital expenditures,
• certain dividends and distributions, and
• certain amendments to our articles of association and the articles of association of Royal TPG Post B.V., including any amendment to the articles of association with respect to
  • a modification of the objects clause that relates to performance of the concession obligations,
  • the creation of new classes of shares, profit sharing certificates or other securities entitling the holder thereof to the earnings and/or shareholders’ equity of the company,
  • the cancellation of the special share, -the cancellation of the preference shares B, -the transfer of the special share, and -the amendment of the rights attached to the special share.
  • the cancellation of the preference shares B,
  • the transfer of the special share, and
  • the amendment of the rights attached to the special share

The majority of our former logistics division is reported as discontinued operations/assets held for sale. Our network related logistics business has been transferred to the express division.

The mail business provides services for collecting, sorting, transporting and distributing domestic and international mail. The express business provides demand door-to-door express delivery services for customers sending documents, parcels and freight. The freight management services comprise primarily air and sea freight transportations by acquiring cargo space from airline and shipping firms. We have transferred our innight activities to the express segment and have restated the comparable prior year numbers.

The basis of allocation of net sales by geographical areas is the country or region in which the entity recording the sales is located.

Total assets of our company at 31 December 2005 and the capital expenditures in property, plant and equipment in 2005 were located as follows:

In 2005, non-allocated operating income amounted to a loss of €103 million (2004: 71). Included in these costs is €61 million (2004: 38) for business initiatives of which €33 million (2004: 20) was used to further develop our operations in China. During 2005 we strengthened the TNT China corporate headoffice, we started our domestic parcel express business, which included 75 depots at the end of the year and we launched our direct mail activities. The average number of full-time equivalents employed for this initiative was 485 at year end 2005. The remaining €28 million (2004: 18) of the business initiatives was used for several other strategic projects, including the aim to build alliances with other organisations and postal operators, rebranding costs of non TNT branded organisations into the TNT brand and a cost efficiency project for lean warehousing. Costs made to support the World Food Programme were €9 million (2004: 9), including costs for knowledge transfer, hands-on support, raising awareness and funds for the World Food Programme and cash donations. The other costs were €45 million (2004: 24), which represent an increase of €21 million compared to 2004. This increase mainly related to costs incurred for tax investigations, which amounted to €23 million compared to €13 million in 2004 and to costs for the self insured part of the damage caused by major fires in three different warehouses in the United States, Spain and the United Kingdom and employer liability in the United Kingdom. These costs were partly offset by the gain on the sale of Global Collect B.V. (€12 million).

O 34 DIFFERENCES BETWEEN IFRS AND US GAAP
(No corresponding financial statement number)

Profit for the period and shareholders’ equity reconciliation statements

Our consolidated financial statements are prepared in accordance with IFRS, which differ in certain respects from generally accepted accounting principles in the United States (US GAAP).

The following tables summarise the principal adjustments, gross of their tax effects, which reconcile profit for the period and total shareholders’ equity under IFRS to the amounts that would have been reported had US GAAP been applied:

The following is a summary of the significant differences for our company.

Employee benefits

As permitted under IFRS 1, First-time Adoption of International Financial Reporting Standards, at the date of transition to IFRS we have elected to recognise all cumulative actuarial gains and losses and as permitted under IAS 19, Employee Benefits, the unrecognised prior year service costs for all our defined benefit pension plans. For US GAAP purposes the actuarial gains and losses continue to be recognised under the corridor approach while unrecognised prior year service costs are recognised during the future service periods of the active employees. This has resulted in a lower pension expense of €10 million under US GAAP than under IFRS.

Employee benefits include expenses of €26 million related to payments expected to be made to certain employees on reaching a specific number of years of service. As permitted under IFRS 1, First-time Adoption of International Financial Reporting Standards, at the date of transition to IFRS, we recorded a liability with a corresponding adjustment to shareholders’ equity as at that date. For US GAAP purposes, we have included the amount in the income statement resulting in a difference in the profit for the period between IFRS and US GAAP.

Under IFRS, we have accounted for certain defined benefit obligations in Italy by using the actuarial present value of the vested benefits to which an employee is currently entitled to, but based on the employee’s expected date of separation or retirement. As permitted under Emerging Issues Task Force (EITF) No. 88-1, Determination of Vested Benefit Obligation for Defined Benefit Plan, we have accounted for these obligations using the nominal value of the vested benefits to which the employee is entitled to if an employee separates immediately.

Employment schemes

In the past, we recognised a liability for future wage guarantees, which did not qualify as a liability under US GAAP. This difference resulted in a reconciliation to US GAAP shareholders’ equity. As at 1 January 2001, after approval of our labour unions and central works council, we transferred the liability to an insurance company. As a result, the obligation for future wage guarantees was settled in full in December 2001. For US GAAP we recognised the transfer payment to the insurance company as a deposit asset that was charged to our statement of income based on the wage guarantees paid by the insurance company of €11 million in 2004.

Following the outcome of an unfavourable court decision with regard to the timing of the deductibility of the settlement amount paid for fiscal filing purposes in October 2004, we have decided to unwind the contract in accordance with the resolutive condition in the contract as per 23 December 2004. For IFRS purposes the termination of the contract led to a repayment by the insurance company (for an amount of €134 million) which was accounted for as a reduction in our salary costs. For US GAAP purposes however, we have unwounded the deposit asset (with a remaining balance of €130 million at the moment of termination of the contract). Due to the cancellation of the contract the reconciling item relating employee schemes no longer exists as per 31 December 2004.

The position of the SEC is that in the event shareholder approval is required, management is not considered having authority. Accordingly, under US GAAP the criteria “management having the authority to approve the action, commits to a plan to sell the asset” is not met. The French logistics business meets all criteria and has been presented as discontinued operations and the remainder of the logistics business has presented as part of continuing operations.

Depreciation and amortisation from 6 December 2005 to 31 December 2005 for our discontinued logistics business other than the French activities that we sold during 2005 amounted to €8 million and is included as a reconciling item between IFRS and US GAAP.

Condensed consolidated balance sheets and condensed consolidated statements of income as at and for the years ended 31 December 2005 and 31 December 2004 are presented below. These statements present consolidated financial data in accordance with US GAAP and include our discontinued logistics business, other than the French activities sold, as business from continuing operations.

Under IFRS and under US GAAP, we amortise identifiable and separable intangible assets over their estimated useful lives. Prior to 1 January 2004, we were not required to separate out intangible assets from goodwill resulting in a different carrying value and related amortisation between IFRS and US GAAP for separately identifiable intangible assets. The relating gross carrying amount was €28 million and the accumulated amortisation was €10 million. As at 31 December 2005, we had no separately identified intangible assets with indefinite useful lives.

Repurchase of shares

On 29 September 2004 we announced that the State of the Netherlands sold a total of 77.7 million ordinary shares in our outstanding share capital. We repurchased 20.7 million shares for a share price of €19.74 of the total amount of shares sold by the State of the Netherlands. Transfer of the repurchased ordinary shares has taken place in two tranches. The first tranche of 7.6 million shares was transferred to us on 4 October 2004. The transfer of the remaining 13.1 million shares was completed on 5 January 2005 and repurchased for €259 million.

Under IFRS, the first tranche of 7.6 million shares representing an amount of €150 million, have been accounted for in the balance sheet as a debit against equity. Related transaction costs (€1 million) have been debited against equity both under IFRS and under US GAAP.

The transfer of the legal ownership for the second tranche took place on 5 January 2005. Under US GAAP (SFAS 150,

Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity ), the second tranche (of 13.1 million shares) classifies as a financial instrument that should be accounted for as a liability rather than as equity. Therefore, we have reclassified an amount of €259 million (including €1 million interest costs) from equity to liabilities in our balance sheet as per 31 December 2004. Under IFRS the second tranche was presented as a commitment not appearing in the balance sheet as we only adopted the requirements of IAS 32 and IAS 39 effective 1 January 2005. We do not expect any reconciling items on subsequent share repurchase programmes.

Minimum pension liability

Under US GAAP we are required to record a minimum pension liability in the event the accumulated benefit obligation (ABO) exceeds the fair value of the pension plan assets, with a corresponding reduction in shareholders’ equity net of deferred taxes. Under IFRS, such a minimum pension liability is not required.

Year ended at 31 December
	2004
Profit attributable to the shareholders
As reported	752
As adjusted	744
Earnings per ordinary share and per ADS
As reported (in € cents)	158.9
As adjusted (in € cents)	157.2
Earnings per diluted ordinary share and per ADS
As reported (in € cents)	158.7
As adjusted (in € cents)	157.0
(in € millions, except per share figures)

Year ended at 31 December
	2004
Risk free interest rate (%)	3.07
Dividend (in € cents per share)	57.0
Volatility (%)	21.7
Life of the option (in years)	8
Vesting period (in years)	3

These pro forma results are not an indicator of future performance. Prior to 1 January 2002, we calculated the fair value of options granted to senior managers and members of the Board using the binomial method, American style with dividend. From 1 January 2002 until 31 December 2004, we calculated the fair value of these options using the Black Scholes model. The use of the Black Scholes model, rather than the binomial pricing model, did not have a material effect on the compensation expense or on the pro forma profit or per share amounts disclosed.

Effective 1 January 2005, as permitted by FASB Statement No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure, we have elected to measure our share based payments using a fair value method. We have used the modified-prospective method wherein we have recognised share based employee compensation as if the fair value based accounting method had been used to account for all employee awards granted, modified, or settled since 1 January 1994 and not yet vested. As all of our sharebased awards vest over a three year period, this meant fair valuing all awards issued on or after 1 January 2002. Under IFRS, as permitted by IFRS 1, First-time Adoption of International Financial Reporting Standards, we were required to fair value share based awards issued after 7 November 2002 resulting in a €1 million difference in the income statement in 2005 between IFRS and US GAAP.

Effective 1 January 2005, our share based payments have been measured using the Monte Carlo fair value measurement method.

FINANCIAL INSTRUMENTS
Effective 1 January 2005, under IFRS we are required to value derivative instruments at fair value and are required to recognise changes therein recognised either in current earnings or through a separate component of shareholders’ equity, depending on specific criteria. Similar accounting treatment is required under US GAAP. As at 31 December 2005 we had no significant differences between IFRS and US GAAP, in accounting for our derivative instruments.

GUARANTEES
We have provided guarantees in 2005, none of which are within the scope of FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. These guarantees are outside the scope of FIN 45 because they are guarantees of our own performance.

OTHER
Under IFRS, a curtailment gain on a suspended retirement plan is recognised as the difference between the curtailment gain and the estimated additional liability to terminate the plan. Under US GAAP, an estimated liability to terminate a plan is not recorded until the plan is formally terminated. This accounting difference resulted in a €2 million adjustment to our reconciliation of shareholders’ equity under IFRS to that under US GAAP in order to reverse the recognition of the estimated liability to terminate the plan that was made in 2002.

Under IFRS, provisions were made for constructive obligations for early retirement benefits for certain part-time employees in one of our group companies. Under US GAAP these provisions were not permitted as we were not legally obligated to make these payments at year end 2004. However, a provision under US GAAP was permitted in 2005 and accordingly there is no longer a difference in shareholders’ equity related to this as at 31 December 2005.

Under IFRS, for intangible assets other than goodwill, restoration of previously recognised impairments is required when the reason for the impairment is no longer valid. Under US GAAP, restoration of previously recognised impairments is prohibited.

Property, plant and equipment transferred to our company in connection with the incorporation of the postal and telecommunications business as of 1 January 1989, were valued at the then current value. This method is prescribed under Dutch law and permitted under IFRS. US GAAP requires that property, plant and equipment be valued at historical cost. No adjustment to the IFRS accounts is made in the US GAAP reconciliation in relation to this difference, as the original historical cost can not be determined.

We recognise deferred tax assets if it is more likely than not that they will be realised in the foreseeable future. Accordingly, we have established valuation allowances of €140 million (2004: 123) and recorded as at 31 December 2005 net deferred tax assets of €71 million (2004: 79). Under IFRS we have recorded the same amounts of net deferred tax assets.

The total accumulated other comprehensive income, net of taxes, of €822 million mainly includes a minimum pension liability of €587 million and the rest consist of unrealised gains and losses on foreign currency translations.

Recent US GAAP accounting pronouncements

The Financial Accounting Standards Board in the United States has issued certain Statements of Financial Accounting Standards (SFAS), each of which, when adopted, could affect our consolidated financial statements for US GAAP reporting.

In December 2004, the FASB issued a revised version of SFAS 123, Sharebased payments, Revised 2004 (SFAS 123(R)). The SEC has issued Staff Accounting Bulletin No. 107 relating to the adoption of SFAS 123(R). SFAS 123(R) requires us to measure all employee share based compensation awards using a fair value method, estimate award forfeitures, and record such expense in our consolidated statements of income. This statement supersedes APB Opinion No. 25, Accounting for Stock issued to Employees. The provisions of this statement were effective 1 January 2006. As permitted by FASB Statement No. 148, Accounting for Stock-Based Compensation

– Transition and Disclosure , we have elected, effective I January 2005, to measure our share based payments using a fair value method under SFAS 123 using the transition provisions of SFAS 148. Accordingly, we do not expect the adoption of SFAS 123(R) to have a material impact on our financial statements.

Emerging Issues Task Force (EITF) of the FASB issued EIFT 05­6, Determining the Amortisation Period for Leasehold Improvements Purchased after Lease Inception or Acquired in a Business Combination. This pronouncement requires that leasehold improvements acquired in a business combination or purchased subsequent to the inception of the lease should be amortised over the lesser of the useful life of the asset or the lease term that includes reasonably assured lease renewals as determined on the date of acquisition of the leasehold improvement. We are required to adopt this pronouncement effective 1 January 2006 and do not expect the adoption the EITF 05-6 to have a material impact on our financial statements.