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Financial Statements
Notes to the consolidated balance sheets
ο | INTANGIBLE ASSETS: 1,785 MILLION (2005: 1,838)
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| Statement of changes in intangible assets | Goodwill | Software | Other intangibles | Total |
| Amortisation percentage | 10% - 35% | 0% - 35% | ||
| Historical cost | 3,280 | 282 | 120 | 3,682 |
| Accumulated amortisation and impairments | (855) | (173) | (11) | (1,039) |
| Balance at 31 December 2004 | 2,425 | 109 | 109 | 2,643 |
| Changes in 2005 | ||||
| Additions | 26 | 63 | 17 | 106 |
| Disposals | (5) | (1) | (6) | |
| (De)consolidation | (1) | 5 | 4 | |
| Transfers to assets held for sale | (812) | (12) | (10) | (834) |
| Internal transfers/reclassifications | 18 | (18) | ||
| Amortisation and impairments | (49) | (16) | (65) | |
| Exchange rate differences | (8) | 1 | (3) | (10) |
| Total changes | (799) | 19 | (25) | (805) |
| Historical cost | 2,139 | 335 | 103 | 2,577 |
| Accumulated amortisation and impairments | (513) | (207) | (19) | (739) |
| Balance at 31 December 2005 | 1,626 | 128 | 84 | 1,838 |
| Changes in 2006 | ||||
| Additions | 99 | 83 | 20 | 202 |
| Disposals | (9) | (1) | (10) | |
| (De)consolidation | 31 | 31 | ||
| Transfers to assets held for sale | (144) | (3) | (68) | (215) |
| Internal transfers/reclassifications | 11 | (11) | ||
| Amortisation and impairments | (1) | (57) | (5) | (63) |
| Exchange rate differences | 2 | 2 | ||
| Total changes | (53) | 33 | (33) | (53) |
| Historical cost | 2,086 | 402 | 58 | 2,546 |
| Accumulated amortisation and impairments | (513) | (241) | (7) | (761) |
| Balance at 31 December 2006 | 1,573 | 161 | 51 | 1,785 |
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Intangible assets as at 31 December 2006 of €211 million related to our discontinued freight management business are included in assets held for sale. €215 million included in the table above as transferred to assets held for sale represents the balance as at 1 January 2006 and does not reflect the movements (mainly related to foreign exchange effects) during 2006. Intangible assets as at 31 December 2005 of €895 million related to our discontinued logistics business are included in assets held for sale. €834 million included in the table above as transferred to assets held for sale represents the balance as at 1 January 2005 and does not reflect the movements (mainly related to foreign exchange effects) during 2005.
Goodwill is not amortised but is subject to annual impairment review.
For our impairment review purposes, all goodwill, including goodwill generated from the acquisition of TNT and GD Express Worldwide, is allocated to the applicable cash generating units (CGUs), based on the revenue as at the date of acquisition. Of the total goodwill balance of €1,573 million, we have allocated €1,248 million to our Express Europe CGU, €197 million to our combined CGU European Mail Networks, €95 million to our other express CGUs and €33 million to our other mail CGUs. The recoverable amount of a CGU is determined based on value in use calculations by using the discounted cash flow model. These calculations use cash flow projections based on financial budgets approved by management covering a period of 9 years (express) or 10 years (mail). TNT’s management has demonstrated that its cash flow projections have been reliable in the past. The value beyond the explicit forecast period is calculated assuming a constant cashflow as from the final year (0% growth).
We determined the budgeted gross margin based on past performance and its expectations for market development. The weighted average growth rates used are consistent with the forecasts included in industry reports. The discount rates used in the CGU valuations vary from 7.0% to 8.0% (pre-tax) to reflect specific risks relating to the relevant segments.
Software balance includes internally generated software with a book value of €121 million at 31 December 2006 (2005: 103). Other intangible assets relate to customer lists of €35 million (2005: 75) and software under construction of €16 million (2005: 8). Of the additions in software, €54 million related to selfproduced software and €29 million related to purchased software.
The estimated amortisation expenses for software and other intangibles for the subsequent five years are 2007: €18 million, 2008: €27 million, 2009: €17 million, 2010: €11 million, 2011: €8 million and after 2011: €131 million. We do not conduct fundamental research and development. Therefore we do not incur fundamental research and development costs.
ο 2 PROPERTY, PLANT AND EQUIPMENT: 1,678 MILLION (2005: 1,552)
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| Statement of changes in property, plant and equipment | Land and buildings | Plant and equipment | Aircraft | Other | Construction in progress | Total |
| Depreciation percentage | 0% - 10% | 4% - 33% | 4% - 10% | 7% - 25% | 0% | |
| Historical cost | 1,524 | 1,239 | 372 | 706 | 47 | 3,888 |
| Accumulated depreciation and impairments | (564) | (775) | (128) | (497) | (1,964) | |
| Balance at 31 December 2004 | 960 | 464 | 244 | 209 | 47 | 1,924 |
| Changes in 2005 | ||||||
| Capital expenditure | 24 | 52 | 70 | 87 | 233 | |
| Acquisitions | 1 | 4 | 5 | |||
| Disposals | (2) | (6) | (1) | (8) | (17) | |
| Exchange rate differences | 9 | 3 | 3 | 5 | 20 | |
| Net additions/disposals | 31 | 50 | 2 | 71 | 87 | 241 |
| Depreciation and impairments | (61) | (90) | (25) | (79) | (255) | |
| Transfers to assets held for sale | (161) | (148) | (48) | (1) | (358) | |
| Transfers and reclassifications | 36 | 37 | 16 | (89) | ||
| Total changes | (155) | (151) | (23) | (40) | (3) | (372) |
| Historical cost | 1,360 | 933 | 375 | 584 | 44 | 3,296 |
| Accumulated depreciation and impairments | (555) | (620) | (154) | (415) | (1,744) | |
| Balance at 31 December 2005 | 805 | 313 | 221 | 169 | 44 | 1,552 |
| Changes in 2006 | ||||||
| Capital expenditure | 43 | 75 | 111 | 70 | 118 | 417 |
| Acquisitions | 2 | 4 | 2 | 8 | ||
| Disposals | (12) | (6) | (3) | (6) | (27) | |
| Exchange rate differences | 3 | (1) | 2 | 4 | ||
| Net additions/disposals | 36 | 72 | 110 | 66 | 118 | 402 |
| Depreciation and impairments | (59) | (92) | (25) | (79) | (255) | |
| Transfers to assets held for sale | (13) | (8) | (21) | |||
| Transfers and reclassifications | 54 | 49 | 14 | (117) | ||
| Total changes | 18 | 29 | 85 | (7) | 1 | 126 |
| Historical cost | 1,385 | 877 | 477 | 500 | 45 | 3,284 |
| Accumulated depreciation and impairments | (562) | (535) | (171) | (338) | (1,606) | |
| Balance at 31 December 2006 | 823 | 342 | 306 | 162 | 45 | 1,678 |
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Property, plant and equipment as at 31 December 2006 of €25 million related to our discontinued freight management business and our other assets held for sale is included in assets held for sale. €21 million included in the table above as transferred to assets held for sale represents the balance as at 1 January 2006 and does not reflect the movements during 2006. Property, plant and equipment as at 31 December 2005 of €345 million related to our discontinued logistics business and our other assets held for sale is included in assets held for sale. €358 million included in the table above as transferred to assets held for sale represents the balance as at 1 January 2005 and does not reflect the movements during 2005.
Historical cost refers to, amongst others, the then current value of the property, plant and equipment contributed by the former parent Royal PTT Nederland N.V. to our company upon incorporation on 1 January 1989. The calculation of the depreciation expense on these assets takes into account the useful life that had already elapsed at that date. The book value at 31 December 2006 of these assets contributed to our company on 1 January 1989 is €74 million (2005: 100), net of accumulated depreciation of €176 million (2005: 221).
Aircraft and (spare) engines are depreciated on a straight-line basis over the shorter of the asset’s useful life and the lease term to estimated residual values of 20%. Depending on the type of aircraft, the depreciation term varies from 10 to 25 years. Spare parts are depreciated to their estimated residual value on a straight line basis over the remaining estimated useful life of the associated aircraft or engine type. All 44 aircrafts (2005: 43) are operated by the express business.
Finance leases included in the property, plant and equipment balance as at 31 December 2006 are:
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| Land and buildings | Plant and equipment | Aircraft | Other | Total 2006 | Total 2005 | |
| Under finance lease | 26 | 15 | 110 | 40 | 191 | 84 |
| Express | 16 | 15 | 110 | 4 | 145 | 10 |
| 10 | 36 | 46 | 74 | |||
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Included in land and buildings under financial lease are lease hold rights and ground rent. The book value of the lease hold rights and ground rent in mail is €10 million, comprising a historical cost of €16 million with accumulated depreciation of €6 million. The book value of the lease hold rights and ground rent in express is €16 million, comprising a historical cost of €19 million with accumulated depreciation of €3 million.
Lease hold and ground rents expiring within 1 year amount to €1 million, lease hold and ground rents between 1 and 5 years amount to €3 million, lease hold and ground rents between 5 and 20 years amount to €16 million and lease hold and ground rents between 20 and 40 years amount to €2 million. Lease hold and ground rents contracts with indefinite terms amount to €4 million.
Lease hold rights and ground rent for land and buildings are mainly in Belgium for €10 million, in the Netherlands for €10 million and in France for €6 million.
The finance leases relating to Express increased. On 6 December 2006 we entered into a 10-year finance lease agreement pertaining to the acquisition of a Boeing 747-400 ERF. The total capitalised value of the aircraft was €110 million based upon the present value of the minimum lease payments and guaranteed residual value included as part of the transaction. The lease requires semi-annual lease payments of a base amount of €4.8 million adjusted by an interest matrix that is linked to our credit rating at the time of each semi-annual payment. The lease agreement and related documents do not include an option for us to purchase the aircraft.
Land and buildings of €34 million (2005: 33) are pledged as security to third parties, by express in Germany.
We do not hold freehold office buildings for long term investments and for long term rental income purposes. The rental income is based upon incidental rental contracts with third parties for buildings which are temporarily not in use by TNT or based upon contracts which are supportive to the primary business activities of our company.
There are no material temporarily idle property, plant and equipment at 31 December 2006 (2005: 0). The historical cost of fully depreciated property, plant and equipment that is still in use is €353 million (2005: 322) of which €175 million (2005: 150) is related to plant and equipment, €49 million (2005: 42) is related to land and buildings and €129 million is related to other (2005: 130).
ο 3 financial fixed assets: 314 MILLION (2005: 273)
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| Statement of changes in financial fixed assets | Investments in associates | Other loans receivable | Deferred tax assets | Prepayments and accrued income | Total | |
| Financial assets at fair value | Other prepayments and accrued income | |||||
| Balance at 31 December 2004 | 84 | 21 | 253 | 5 | 140 | 503 |
| Adoption of IAS 32/39 | (3) | (3) | ||||
| Balance at 1 January 2005 | 84 | 21 | 253 | 5 | 137 | 500 |
| Changes in 2005 | ||||||
| Acquisitions/additions | 13 | 3 | 38 | 2 | 56 | |
| Disposals/decreases | (7) | (61) | (68) | |||
| Transfers to assets held for sale | (40) | (5) | (46) | (3) | (107) | (201) |
| (De)consolidation | 1 | (4) | (3) | |||
| Withdrawals/repayments | (1) | (6) | (1) | (6) | (14) | |
| Exchange rate differences | 3 | 1 | 4 | |||
| Other changes | (2) | 1 | (1) | |||
| Total changes | (37) | (8) | (65) | (4) | (113) | (227) |
| Balance at 31 December 2005 | 47 | 13 | 188 | 1 | 24 | 273 |
| Changes in 2006 | ||||||
| Acquisitions/additions | 20 | 1 | 51 | 16 | 1 | 89 |
| Disposals/decreases | (26) | (26) | ||||
| Transfers to assets held for sale | (3) | (3) | (1) | (7) | ||
| (De)consolidation | 2 | 1 | 3 | |||
| Withdrawals/repayments | (7) | (4) | (11) | |||
| Exchange rate differences | (1) | (1) | ||||
| Other changes | (6) | (6) | ||||
| Total changes | 11 | (6) | 23 | 16 | (3) | 41 |
| Balance at 31 December 2006 | 58 | 7 | 211 | 17 | 21 | 314 |
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Financial fixed assets as at 31 December 2006 of €9 million related to our discontinued freight management business is included in assets held for sale. €7 million included in the table above as transferred to assets held for sale represents the balance as at 1 January 2006 and does not reflect the movements during 2006.
Financial fixed assets as at 31 December 2005 of €160 million related to our discontinued logistics business is included in assets held for sale. €201 million included in the table above as transferred to assets held for sale represents the balance as at 1 January 2005 and does not reflect the movements during 2005.
Deferred tax assets
Deferred tax assets are further explained in note 23.
Financial assets at fair value
Financial assets at fair value include our 5% equity stake in Louis Topco Limited for an amount of €15.5 million, which we obtained as part of the sale of our logistics division as at 4 November 2006. We also refer to note 8.
Also included is the fair value of a USD 139 million Interest Rate Swap of €1 million. For further disclosure on this swap, see note 13.
Financial assets at fair value include the fair value of put and call options. As agreed on 15 July 2004, on 14 October 2004, our subsidiary Royal TNT Post B.V. and Essent N.V. established a company named Cendris BSC Customer Contact B.V. in which the ordinary share capital, carrying equal voting rights, is split 51% and 49% respectively. Cendris BSC Customer Contact B.V. provides call centre activities to TNT, Essent N.V. and third parties. The terms and conditions of the shareholders agreement provide Royal TNT Post B.V. with the option to call, as of 14 October 2007, on the shares of Essent N.V. and for Essent N.V. to put, as of 14 October 2007, its shares to Royal TNT Post B.V. where the price is determined by the fair market value of the shares. As the call option is based on the fair market value of the shares, the fair market value of the call option is zero.
Other prepayments and accrued income
The opening balance sheet adjustment in 2005 for adoption of IAS 32/39 relates to the changed accounting policy for the 5.125% Eurobond 2008 of which €3 million relates to the issuing costs still to be amortised. These capitalised costs are included in the valuation at amortised cost and stated as part of the book value of the 5.125% Eurobond 2008.
Investments in associates
The goodwill balance included in investments in associates at 31 December 2006 is nil (2005: 1). The result from investments in associates at 31 December 2006 amounts to €-6 million (2005:-2) and is included in ‘Other changes’.
Our investment in Logispring Investment Fund Holding B.V. is our most significant investment in an associate. We account for this investment using the equity method.
Key information regarding this investment (on a stand alone basis) is as follows and includes balances at 100%:
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| Year ended at 31 December | |||
| 2006 | 2005 | 2004 | |
| Non-current assets | 52 | 41 | 30 |
| Current assets | 0 | 0 | 0 |
| Equity | 52 | 41 | 30 |
| Non-current liabilities | 0 | 0 | 0 |
| Current liabilities | 0 | 0 | 0 |
| Net sales | 0 | 0 | 0 |
| Operating income | 0 | 0 | 0 |
| Profit attributable to the shareholders | (5) | (3) | (3) |
| Net cash from operating activities | 0 | 0 | 0 |
| Net cash used in investing activities | (16) | (13) | (10) |
| Net cash used in financing activities | 16 | 13 | 10 |
| Change in cash from continuing operations | 0 | 0 | 0 |
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ο 4 INVENTORY: 29 MILLION (2005: 29)
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| At 31 December | ||
| 2006 | 2005 | |
| Raw materials and supplies | 9 | 9 |
| Finished goods | 20 | 20 |
| Total | 29 | 29 |
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Total inventory of €29 million (2005: 29) is valued at historical cost for an amount of €35 million (2005: 33) and is stated net of provisions for obsolete items amounting to €6 million (2005: 4). There are no inventories carried at net realisable value (2005: 0) and no inventories are pledged as security for liabilities as at 31 December 2006. The balance of inventories that is expected to be recovered after 12 months is €1 million (2005: 0).
No inventory as at 31 December 2006 relating to our discontinued freight management business is included in assets held for sale. Inventory as at 31 December 2005 of €22 million related to our discontinued logistics business is included in assets held for sale.
ο 5 ACCOUNTS RECEIVABLE: 1,561 MILLION (2005: 1,471)
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| At 31 December | ||
| 2006 | 2005 | |
| Trade accounts receivable - total | 1,380 | 1,351 |
| Provision for impairment | (61) | (58) |
| Trade accounts receivable - net | 1,319 | 1,293 |
| Vat receivable | 27 | 20 |
| Accounts receivable from associates | 2 | |
| Other | 215 | 156 |
| Total | 1,561 | 1,471 |
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The fair value of the accounts receivable approximates its carrying value. We have not recognised any material loss for the impairment of trade accounts receivable during the year ended 31 December 2006 and 31 December 2005. Other accounts receivables mainly include receivables from insurance companies, deposits and various other items. The balance of accounts receivable that is expected to be recovered after 12 months is €1 million (2005: 3).
Accounts receivable as at 31 December 2006 of €112 million related to our discontinued freight management business is included in assets held for sale. Accounts receivable as at 31 December 2005 of €695 million related to our discontinued logistics business is included in assets held for sale.
ο 6 PREPAYMENTS AND ACCRUED INCOME: 227 MILLION (2005: 218)
Prepayments and accrued income include amounts paid in advance to cover costs that will be charged against income in future years and net revenues not yet invoiced. At 31 December 2006, prepayments amounted to €70 million (2005: 73). There is no balance that is expected to be recovered after 12 months (2005: 2).
Prepayments and accrued income also includes all outstanding short term foreign exchange forward contracts at fair value for an amount of €3 million (2005: 6). The fair value has been calculated at the relevant market (forward) rates at 31 December 2006. The notional principal amount of the outstanding foreign exchange forward contracts at 31 December 2006 is €282 million (2005: 482).
Prepayments and accrued income as at 31 December 2006 of €23 million related to our discontinued freight management business is included in assets held for sale. Prepayments and accrued income as at 31 December 2005 of €157 million related to our discontinued logistics business is included in assets held for sale.
ο 7 CASH AND CASH EQUIVALENTS: 297 MILLION (2005: 559)
Cash and cash equivalents comprise cash at bank and in hand of €234 million (2005: 325). Short term bank deposits are €63 million (2005: 234). The effective interest rate during 2006 on short term bank deposits was 3% and the average outstanding amount was €78 million with an average maturity of 1.7 days. Included in cash and cash equivalents is €74 million (2005: 140) of restricted cash. The fair value of cash and cash equivalents approximates the carrying value.
Cash and cash equivalents as at 31 December 2006 of €29 million related to our discontinued freight management business are included in assets held for sale. Cash and cash equivalents as at 31 December 2005 of €104 million related to our discontinued logistics business are included in assets held for sale.
ο 8 ASSETS HELD FOR SALE: 409 MILLION (2005: 2,378) LIABILITIES RELATED TO ASSETS CLASSIFIED AS HELD FOR SALE: 146 MILLION (2005: 1,230)
On 6 December 2005 we announced a strategy to focus on our core competency of providing delivery services by expertly managing delivery networks and our intention of selling the logistics business. On 23 August 2006 we announced that we have signed a Sale and Purchase Agreement on the sale of the logistics business. On 4 November 2006 we completed the sale of the logistics division to affiliates of Apollo Management L.P. The logistics division was shown as an asset held for sale as at 31 December 2005.
On 30 October 2006 we announced, as part of the strategy to focus on our core competency, the decision to divest our freight management business. On 16 November 2006 we signed a Sale and Purchase Agreement to sell our freight management business to French logistics service provider Geodis SA. On 5 February 2007 we completed the sale. The freight management business is shown as an asset held for sale as at 31 December 2006.
The combined assets and liabilities as held for sale for 2005 and 2006 are specified below:
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| At 31 December | ||
| Balance sheets | 2006 | 2005 |
| Intangible assets | 211 | 895 |
| Property, plant and equipment | 25 | 345 |
| Financial fixed assets | 9 | 160 |
| Current assets | 164 | 978 |
| Total assets | 409 | 2,378 |
| Deferred tax liabilities | 6 | 30 |
| Provisions for pension liabilities | 4 | 107 |
| Other non-current liabilities | 2 | 133 |
| Current liabilities | 134 | 960 |
| Total liabilities | 146 | 1,230 |
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The assets and liabilities as at 31 December 2006 relates to the decision taken to divest our freight management business. The assets and liabilities held for sale as at 31 December 2005 largely relates to our logistics business.
All inter-company balances as at 31 December 2006 and 31 December 2005 between our discontinued business and our continuing business have been eliminated.
As at 31 December 2006, assets of €409 million include €11 million of assets held for sale in the mail segments and €6 million in the express segment are not related to our discontinued freight management business. The difference between the remaining assets of €392 million and liabilities of €146 million consists of a combination of equity and financing from TNT.
As at 31 December 2005, assets of €2,378 million include €12 million of assets held for sale in the express and mail segments and are not related to our discontinued logistics business. The difference between the remaining assets of €2,366 million and liabilities of €1,230 million consists of a combination of equity and financing from TNT.
As at 31 December 2006 the total guarantees for our discontinued freight management business amounted to €32 million, of which €12 million related to corporate guarantees and €20 million to bank guarantees. All the guarantees of the discontinued business were financial guarantees.
The combined statements of income of our discontinued operations for the last three years are shown below:
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| Year ended at 31 December | |||
| 2006 | 2005 | 2004 | |
| Net sales | 3,769 | 4,331 | 3,847 |
| Other operating revenues | 8 | 14 | 13 |
| Total revenues | 3,777 | 4,345 | 3,860 |
| Other income | (24) | (98) | |
| Total operating expenses | (3,698) | (4,253) | (3,721) |
| Operating income | 55 | (6) | 139 |
| Net financial (expense)/income | (63) | (69) | (62) |
| Results from investments in associates | (45) | (1) | |
| Profit/(loss) before taxes | (53) | (75) | 76 |
| Income taxes | (17) | (34) | (47) |
| Profit/(loss) for the year | (70) | (109) | 29 |
| Post-tax result disposal assets held for sale | (87) | ||
| Profit attributable to minority interests | (3) | ||
| Profit/(loss) from discontinued operations | (157) | (109) | 32 |
| Earnings from discontinued operations per ordinary share (in € cents) | (37.3) | (24.0) | 6.8 |
| Earnings from discontinued operations per diluted ordinary share (in € cents) | (37.0) | (23.9) | 6.8 |
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Inter-company revenues and related expenses of €55 million have not been eliminated in our statements of income related to our discontinued business. Net interest expense of €52 million (2005: 53; 2004: 49) related to debt, as part of our cash management strategy, that can be allocated to our discontinued business has been included in the statements of income. The statements of income also include costs related to shared services of €18 million (2005: 23; 2004: 14) directly attributable to our discontinued business.
The combined cash flows relating to our discontinued operations are as follows:
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| Year ended at 31 December | |||
| 2006 | 2005 | 2004 | |
| Net cash from operating activities | (63) | 43 | 268 |
| Net cash used in investing activities | (30) | (22) | (24) |
| Net cash used in financing activities | 36 | 8 | (202) |
| Change in cash from discontinued operations | (57) | 29 | 42 |
| Cash at the beginning of the year | 136 | 101 | 60 |
| Exchange rate differences | (2) | 6 | (1) |
| Change in cash from discontinued operations | (57) | 29 | 42 |
| Cash divested with sale Logistics business | (48) | ||
| Cash at the end of the year | 29 | 136 | 101 |
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Hereafter the separate statements of income and cash flow statements for the logistics business are shown.
It should be noted that the 2006 figures for the logistics business are as of and through 4 November 2006 and are therefore not fully comparable to 2005 and 2004.
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| Year ended at 31 December | |||
| Statement of income Logistics division | 2006 | 2005 | 2004 |
| Net sales | 2,925 | 3,542 | 3,568 |
| Other operating revenues | 8 | 14 | 13 |
| Total revenues | 2,933 | 3,556 | 3,581 |
| Other income | (24) | (98) | |
| Total operating expenses | (2,866) | (3,475) | (3,448) |
| Operating income | 43 | (17) | 133 |
| Net financial (expense)/income | (54) | (63) | (60) |
| Results from investments in associates | (45) | (1) | |
| Profit/(loss) before taxes | (56) | (80) | 72 |
| Income taxes | (10) | (31) | (44) |
| Profit/(loss) for the year | (66) | (111) | 28 |
| Post-tax result disposal assets held for sale | (87) | ||
| Profit attributable to minority interests | (3) | ||
| Profit/(loss) from discontinued operations | (153) | (111) | 31 |
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2006 Discontinued logistics business
On 4 November 2006 TNT completed the sale of the logistics division to affiliates of Apollo Management L.P. The total transaction value was €1,480 million on a cash and debt free basis. Taking into account deductions by the buyer for finance leases, pension and other employee benefits, and various costs for separation and rebranding, we received proceeds of €1,335 million, of which €15.5 million was received in the form of a 5% equity stake in Louis Topco Limited.
In 2006 discontinued logistics operations resulted in an operating income of €43 million. Included in this income is a €35 million loss in respect of a provision for onerous contracts. In the first quarter of 2006 the remainder of our French operations was sold to the French cargo transport operator Malherbe and Pierre-Michel Mendy/ Groupe Lapegue resulting in a total loss of €26 million, recorded in ‘Other income’.
The loss in 2006 of €45 million on ‘Result from investments in associates’ relates mainly to a €43 million asset impairment in respect of TNT’s 20% equity interest in Global Automotive Logistics SAS.
The post-tax transaction loss on disposal assets held for sale of the logistics business amounts to €87 million and includes various deal related expenses and the portion of our cumulative translation adjustment that relates to our divested logistics business resulting in a charge of €12 million.
For 2006 the total loss from discontinued operations related to the logistics business amounted to €153 million.
2005 Discontinued logistics business
The total amount of our results from discontinued logistics operations for 2005 includes the results of the sale of the majority of our French operations to Norbert Dentressangle and to Malherbe amounting to a loss of €102 million, pre-tax.
The result of the sale was recorded in ‘Other income’.
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| Year ended at 31 December | |||
| Cash flow statements Logistics division | 2006 | 2005 | 2004 |
| Net cash from operating activities | (79) | 28 | 250 |
| Net cash used in investing activities | (29) | (19) | (22) |
| Net cash used in financing activities | 53 | 19 | (216) |
| Change in cash from discontinued operations | (55) | 28 | 12 |
| Cash at the beginning of the year | 104 | 71 | 60 |
| Exchange rate differences | (1) | 5 | (1) |
| Change in cash from discontinued operations | (55) | 28 | 12 |
| Cash at the end of the year | 48 | 104 | 71 |
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Hereafter the separate statements of income and cash flow statements for the freight management business are shown.
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| Year ended at 31 December | |||
| Statement of income Freight management business | 2006 | 2005 | 2004 |
| Net sales | 844 | 789 | 279 |
| Other operating revenues | |||
| Total revenues | 844 | 789 | 279 |
| Other income | |||
| Total operating expenses | (832) | (778) | (273) |
| Operating income | 12 | 11 | 6 |
| Net financial (expense)/income | (9) | (6) | (2) |
| Results from investments in associates | |||
| Profit/(loss) before taxes | 3 | 5 | 4 |
| Income taxes | (7) | (3) | (3) |
| Profit/(loss) for the year | (4) | 2 | 1 |
| Post-tax result disposal assets held for sale | |||
| Profit attributable to minority interests | |||
| Profit/(loss) from discontinued operations | (4) | 2 | 1 |
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In 2006 profit decreased by €6 million compared to 2005. This largely relates to the costs associated with the sale of freight management.
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| Year ended at 31 December | |||
| Cash flow statements Freight Management business | 2006 | 2005 | 2004 |
| Net cash from operating activities | 16 | 15 | 18 |
| Net cash used in investing activities | (1) | (3) | (2) |
| Net cash used in financing activities | (17) | (11) | 14 |
| Change in cash from discontinued operations | (2) | 1 | 30 |
| Cash at the beginning of the year | 32 | 30 | |
| Exchange rate differences | (1) | 1 | |
| Change in cash from discontinued operations | (2) | 1 | 30 |
| Cash at the end of the year | 29 | 32 | 30 |
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ο 9 EQUITY: 2,008 MILLION (2005: 3,279)
Equity consists of shareholders’ equity attributable to the equity holders of the parent of €1,983 million (2005: 3,262) and minority interest of €25 million (2005: 17). Equity attributable to the holders of the parent consists of the following items:
Issued Share Capital
Issued share capital amounted to €203 million at 31 December 2006 (2005: 230; 2004: 230). The number of authorised, issued and outstanding shares by class of share is as follows:
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| At 31 December | |||
| 2006 | 2005 | 2004 | |
| Authorised | 1,800,000,000 | 2,400,000,000 | 2,400,000,000 |
| Ordinary shares | 900,000,000 | 1,200,000,000 | 1,200,000,000 |
| Preference B | 899,999,999 | 1,199,999,999 | 1,199,999,999 |
| Special share | 1 | 1 | 1 |
| Issued and outstanding | 422,767,601 | 480,000,000 | 480,259,523 |
| Ordinary shares | 422,767,600 | 479,999,999 | 480,259,522 |
| of which held by the company to cover share plans | 2,884,441 | 3,791,438 | 4,979,942 |
| of which held by the company for cancellation | 27,640,543 | 29,460,477 | 7,600,000 |
| Preference B | 0 | 0 | 0 |
| Special share | 1 | 1 | 1 |
| of which held by the company for conversion | 1 | 0 | 0 |
Authorised share capital
By deed of 27 February 2006 our articles of association were amended. As of that date our authorized capital amounts to €864 million, divided into 900,000,000 ordinary shares, 1 special share and 899,999,999 preference shares B of €0.48 nominal value each. Prior to the amendment our authorised share capital amounted to €1,152 million and was divided into 1,200,000,000 ordinary shares, 1 special share and 1,199,999,999 preference shares B of €0.48 nominal value each.
Form of shares
We have ordinary shares in bearer form or in registered form. Ordinary shares in bearer form are represented by a global note held by the Dutch clearing system Euroclear Netherlands (formerly known as NECIGEF) and are transferable through Euroclear Netherlands’ book entry system. Ordinary shares in registered form are transferred by means of a deed of transfer and the company’s written acknowledgement of the transfer. We do not have share certificates for ordinary shares represented by the global note. ADSs represent ordinary shares in bearer form represented by the note held by Euroclear Netherlands. The special share and the preference shares B are registered.
Repurchase of shares to cover share plans
During 2006 we purchased 2,700,000 ordinary shares to cover our obligations under the existing management option plans and share grants. Per 31 December 2006 the total number of shares held is 2,884,441 (2005: 3,791,348; 2004: 4,979,942). TNT shares held by ourselves are not entitled to receive dividends nor have voting rights.
Repurchase of shares / reduction of the issued share capital by cancellation of shares
Over the years 2004 – 2006 we repurchased shares for cancellation. Out of a total of 20.7 million ordinary shares purchased from the State of the Netherlands in 2004 and 2005, 259,523 shares were cancelled in 2005. Cancellation of these shares became effective on 16 June 2005 following a resolution to that effect taken by the annual general meeting held on 7 April 2005.
The cancellation of the remaining number of 20,440,477 shares became effective as per the date of the amendment of our articles of association on 27 February 2006.
Under the share buy back programme announced on 6 December 2005, we purchased 9,020,000 million ordinary shares in December 2005 and 27,201,625 million ordinary shares in the period 1 January up to 14 April 2006. On 20 April 2006 the annual general meeting of shareholders resolved to cancel the 36,221,625 ordinary shares purchased under the programme up to 14 April 2006. The cancellation of these shares became effective as of 27 June 2006. On 29 September 2006 the Extraordinary General Meeting of Shareholders resolved to cancel 570,297 ordinary shares that had been repurchased under the programme since 14 April 2006. The cancellation of these shares became effective as at 12 December 2006.
In 2006, the total number of issued and outstanding ordinary shares thus decreased by 57,232,399. At a nominal value of €0.48 per share, the cancellation equals an amount of €27 million.
We commenced a further buy back programme of €1,000 million on 6 November 2006. In total 27,640,543 million shares were repurchased during 2006. We therefore owned and held for cancellation 27,640,543 ordinary shares at 31 December 2006 (2005: 29,460,477; 2004: 7,600,000). This share buy back program was completed on 23 January 2007 with the repurchase of a total of 3,307,164 ordinary shares in 2007.
A proposal to further reduce the issued share capital by cancellation of the total of 30,947,707 shares repurchased under the November 2006 announced programme will be included in the agenda of the annual general meeting of 2007. At the meeting we can not vote on the shares held by us in our own capital.
The number of shares repurchased during each month of 2006 and the average purchase price per month are set out in the table hereafter.
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| Repurchased in: | Number of shares purchased ¹ | Average price paid per share (in €) | Total number of shares purchased as part of publicly announced plans or programmes | Approximate value of shares that may yet be purchased as part of publicly announced plans or programmes (in € million) |
| Plan announced on 6 December 2005 ² | ||||
| January | 8,182,752 | 26.79 | 17,202,752 | 550 |
| February | 6,267,000 | 27.68 | 23,469,752 | 377 |
| March | 8,665,000 | 27.68 | 32,134,752 | 137 |
| April | 4,657,170 | 29.33 | 36,791,922 | 0 |
| Plan announced on 3 May 2006 ³ | ||||
| May | 2,700,000 | 29.34 | 2,700,000 | 0 |
| Plan announced on 6 November 2006 4 | ||||
| November | 23,768,386 | 32.09 | 23,768,386 | 237 |
| December | 3,872,157 | 32.03 | 27,640,543 | 113 |
| Total number of shares purchased in 2006 | 58,112,465 | 28.50 | ||
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Special share
On 17 November 2006, the State of the Netherlands transferred its special share in the company for free to TNT. For the background to this transaction see Note 32. The conversion of the special share into an ordinary share will also be an item for the annual general meeting of 2007 as part of a proposed amendment to the articles of association of the Company.
Preference shares
The Foundation Protection TNT was formed to care for our interests, the enterprises connected with us and all interested parties, such as shareholders and employees, by, among other things, preventing as much as possible influences which would threaten our continuity, independence and identity contrary to such interests. The Foundation Protection TNT is an independent legal entity and is not owned or controlled by any other legal person. Agreements have been concluded between us and the Foundation for the placement or acquisition of preference shares B.
Additional paid in capital
Additional paid in capital of €1,245 million (2005: 1,421) is exempt for Dutch tax purposes.
Cumulative translation adjustment
In 2006 the cumulative translation adjustment increased by €11 million (2005: 19). This is including an amount of €12 million, being the portion of our cumulative translation adjustment that relates to our divested logistics business. The €12 million was released from equity and charged to income.
The remainder of €-1 million (2005: 19) is the movement in exchange differences on converting foreign subsidiaries of TNT N.V. into euros. These differences are charged or credited to the cumulative translation adjustment, net of taxation.
The cumulative translation adjustment reserve is a statutory reserve, which cannot be distributed to the equity holders of the company.
Hedge reserves
Movements on cash flow hedges amounted to €-9 million (2005:-12) resulting from the fair value movement on the €600 million and USD 306 million of forward starting interest swaps, net of taxes.
The hedge reserve is a statutory reserve, which cannot be distributed to the equity holders of the company.
Other Reserves
The other reserves of €0 (2005: 1,080) decreased by €1,080 million compared to 2005. This largely relates to the repurchase of shares in 2006. For more details on the repurchase plans announced in 2006, we refer to our description above.
The appropriation of net income from 2005 which is added to the Other reserves in 2006 amounts to €386 million (2005: 489).
In 2006 we increased our equity representing the fair value of share based transactions for an amount of €13 million (2005: 10).
The other movement of €54 million (2005: 28) includes the share grants of 2006 and 2005 and exercise rights of option plans of prior years.
Retained earnings
The profit for 2006 has been calculated as the net income for 2006 of TNT N.V. and all its subsidiaries. The 2006 unappropriated component is €561 million (2005: 559), containing the net profit of €670 million (2005: 659) and the paid interim dividend 2006 of €109 million (2005: 100). Subject to the approval of the general meeting of shareholders, the Board of Management proposes to add €378 million (2005:386) to other reserves and to pay €183 million (2005:173) as final dividend.
ο 10 PROVISIONS FOR PENSION LIABILITIES: 23 MILLION (2005: 136)
We operate a number of pension plans around the world. Most of our non-Dutch pension plans are defined contribution plans. For our non-Dutch employees we also operate other post-employment benefit plans and defined benefit plans, for which the liabilities are separately covered by private insurers and foreign pension funds.
Our main Dutch company pension plan (main plan), which is externally funded in “Stichting Pensioenfonds TNT” (main fund), covers the employees who are subject to our collective labour agreement in the Netherlands. The majority of all our Dutch employees are subject to the collective labour agreement. The plan covers some 91,000 participants including approximately 11,000 pensioners and some 32,000 former employees. By Dutch law the plan is carried out by a separate legal entity and is managed by an independent board that falls under the supervision of the Nederlandsche Bank (DNB).
As of 1 January 2006 new fiscal regulations apply to the Dutch pension plans. The early retirement scheme remains in force for the employees born before 1950. The retirement date has been increased however with 3.5 months. The early retirement scheme is no longer applicable for employees born on or after 1950. Depending upon age an additional arrangement is applicable for this group:
- Employees as from the age of 39 on 1 January 2005 receive conditional additional pension benefits to be accrued over the next 15 years and provided for only if the employee will remain a participant until the retirement date or 31 December 2020;
- Employees as from the age of 50 on 1 January 2005 receive additional salary (between 2% and 10% depending upon age);
- Employees who would have been eligible for an early retirement allowance after 40 years of service, have the possibility to retire early for 50% while receiving a 90% payment.
The early retirement scheme and additional arrangements are collectively referred to as the transitional plan.
In the main plan only the employer contributes to the fund. The level of contribution is based upon actuarial recommendations.The total contribution to the main pension fund amounted to €87 million in 2006 (2005: 145) and is estimated to be €101 million in 2007. The benefits for the transitional plans amounted to €107 million in 2006 (2005: 98) and are estimated at €97 million for 2007.
The main fund runs an actively managed investment portfolio. The main fund uses asset and liability management studies that generate future scenarios to determine its optimal asset mix. During 2006, the dynamic weight of equity investments increased to 48.4%, the dynamic weight of fixed interest investments decreased to 37.9% and the weight of real estate and alternative investments increased to 13.2%. The plan assets may from time to time include investment in TNT’s own financial instruments through indirect holdings by mutual funds. However, these indirect holdings are an immaterial share of the total plan assets. The plan assets do not include property occupied by or other assets used by TNT.
Derivatives of equity and debt instruments (e.g. SWAPs) may be used to realise changes in investment portfolio, to hedge against unfavourable market developments or to adjust the matching of assets and liabilities.
The liabilities of our main plan and transitional plan cover approximately 92.3% of our liabilities for post-employment benefits and the assets cover approximately 92.3% of our total plan assets. The return on plan assets was 8.5% in 2006 (2005: 12.7%).
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| At 31 December | ||||
| Actual mix | Strategic mix | |||
| 2006 | 2005 | 2007 | 2006 | |
| Equities | 48.4% | 47.5% | 45% | 45% |
| Fixed interest and Inflation linked Bonds | 37.9% | 44.6% | 40% | 40% |
| Real estate and alternative investment | 13.2% | 7.9% | 15% | 15% |
| Cash | 0.5% | |||
| Total | 100.0% | 100.0% | 100% | 100% |
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| Historical returns | 2006 | 10-year average | Average since plan inception |
| Equities | 15.2% | 10.6% | 9.0% |
| Fixed interest and Inflation linked Bonds | 0.0% | 5.9% | 7.3% |
| Real estate and alternative investment | 18.5% | 10.2% | 7.5% |
| Total | 8.5% | 7.8% | 8.2% |
Pension costs recognised in the statements of income
Inherent to the valuation of our pensions and the determination of our pension cost are key assumptions which include: employee turnover, mortality rates and retirement ages, discount rates, expected long term returns on plan assets, pension increases and future wage increases, which are usually updated on an annual basis at the beginning of each financial year. Actual circumstances may vary from these assumptions giving rise to a different pension liability, which would be reflected as an additional profit or expense in our statement of income, in the next year.
In 2006, our expense for post-employment benefit plans was €120 million (2005: 149). Total cash contributions for pensions in 2006 amounted to €230 million (2005: 264) and are expected to amount to approximately €210 million in 2007.
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| Statement of changes in provisions for pension liabilities | Balance at 1January 2006 | Transfer to discontinued businesses | Employer pension expense | ||