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Financial Statements
NOTES TO THE CONSOLIDATED CASH FLOW STATEMENTS
ο 24 NET CASH FROM OPERATING ACTIVITIES (continuing operations): 857 MILLION (2005: 969; 2004: 690)
The net cash from operating activities decreased by €112 million from €969 million in 2005 to €857 million in 2006. After correction of the gross up in 2006 of interest paid by €89 million, due to a new set up of our cash pool structure, and fully offset by the same amount of interest received, and correction of the repayment of €162 million of taxes in 2005 relating to previous years, the net cash from operating activities would have increased by €139 million compared to 2005.
Cash generated from operations
The increased cash generated from operations reflects an improved profit before income taxes of €77 million compared to 2005. In 2006 profit before income taxes contributed €1,223 million, and €1,541 million if adjusted for the non-cash impact of depreciation, amortisation and impairments, an increase of €92 million or 6.3% compared to 2005 (€1,449 million).
The changes in pension liabilities of €110 million (2005: 121; 2004: 256) reflects the total non-cash charges for the defined benefit pension schemes of €120 million, lowered by our total cash contributions of €230 million to various pension funds. The majority of the cash contributions are for our Dutch employees who fall under our collective labour agreement. Of the total cash contribution an amount of €107 million is 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 €34 million lower than last year, mainly due to €59 million lower contributions as prescribed by the minimum funding requirements of DNB, and a reduced number of eligible employees.
In 2006 the ‘other provisions’ increased as a consequence of a higher provision for claims and indemnities compared to last year of €64 million. This reflects amongst others the disposal of various businesses.
In 2006 the net working capital increased by €90 million compared to an increase of €178 million in 2005. The increase is mainly a result of organic growth and acquisitions. The movements in net working capital cannot be directly reconciled to the balance sheet as a consequence of the treatment of the logistics business as a discontinued operation as at the end of 2005 and the freight management business as at 31 December 2006.
Interest paid
The total cash out flow for interest paid in 2006 is €199 million. In 2006 interest paid increased by €89 million, due to new cash pool structure. This largely explains the variance in interest paid compared to 2005. Interest paid also includes interest on our long term borrowings of €53 million, interest payments of €25 million relating to an increase of short term debt, realised hedge costs on foreign exchange hedges of €17 million and interest paid on taxes of €7 million.
Interest and similar expenses in the statements of income amounted to €246 million. The difference with the interest paid can be explained mainly by interest expense of €21 million relating to our discontinued logistics and freight management business (included in financing relating to our discontinued operations), an increased accrual for interest related to late tax payments of €14 million and interest expenses relating to fair value adjustments on hedges of €9 million.
Taxes paid
The cash outflow of the total tax payments amounted to €282 million (2005: 125; 2004: 403).The net amount of income taxes paid in 2005 includes €162 million repayments by the Dutch tax authority of taxes over previous years after it was concluded that preliminary payments were too high.
ο 25 NET CASH USED IN INVESTING ACTIVITIES (continuing operations): 1,068 MILLION (2005: -262; 2004: -266)
Acquisition of group companies (net of cash)
In 2006, the total payments net of cash for acquisitions of group companies amounted to €89 million. Most acquisitions took place in our express division (€58 million), the largest being ARC India Private Ltd., India (€32 million), TG Plus Transcamer Gomez S.A.U., Spain (€22 million) and ISH Nocni Express, Czech Republic (€3 million). Mail acquired for a total amount of €31 million, mainly related to PostCon Deutschland GmbH, Germany (€12 million), CBS City Briefservice GmbH, Germany (€4 million), Mail Express GmbH, Germany (€3 million), Ridas Sicherheits- und Handelsgesellschaft m.b.H, Germany (€3 million), TWM Italia Srl., Italy (€2 million) and Turbo P.O.S.T. GmbH, Germany (€1 million) (we also refer to note 28 of our consolidated financial statements).
The investments in associated companies primarily related to additional capital contributions in Logispring Investment Fund Holding B.V. and amounted to €20 million.
Disposal of group companies and joint ventures
On 4 November 2006, we completed the sale of the majority of our logistics division to Louis Topco Limited, a company formed and managed by Apollo Management International L.P. The proceeds from the transaction amount to €1,335 million.
Furthermore, the following investments have been sold during 2006:
- 100% of the outstanding shares in Cendris Document Management B.V. (€19 million),
- 100% of the outstanding shares in ID Company Fashion B.V. (€8 million),
- our 50% shareholding in Mailprofs Employment B.V. (€2 million) and
- other disposals of €1 million.
Capital expenditure on intangible assets and property, plant and equipment
In 2006, net capital expenditures on property, plant and equipment amounted to €277 million (2005: 230; 2004: 217). This is excluding the purchase of a Boeing 747 of €110 million which is funded by means of a finance lease. Of this amount, €200 million (2005: 140; 2004: 136) related to express, €74 million (2005: 80; 2004: 75) to mail and €3 million (2005: 10; 2004: 6) to non-allocated. The capital expenditures on intangible assets of €103 million (2005: 80; 2004: 59) mostly related to software. In 2006, capital expenditures were funded primarily by cash generated from operations.
Proceeds from sale of property, plant and equipment and intangible assets
Proceeds from the sale of property, plant and equipment in 2006 totaled €65 million (2005: 43; 2004: 14), which mainly related to the sale of several buildings from TNT Real Estate B.V. and TNT Real Estate Development B.V.(€44 million). In 2005 the proceeds from the sale of property, plant and equipment 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).
Proceeds from the disposal of intangible assets in 2006 amounted to €2 million (2005: 2; 2004: 2).
Interest received
In 2006 interest received amounted to €111 million of which €89 million is due to new cash management arrangements. This largely explains the variance in interest received compared to 2005. Interest received also includes interest on short term deposits and bank balances of €12 million and realised hedge income on foreign exchange hedges of €6 million.
Interest and similar income in the statements of income amounted to €199 million. The total cash in flow for interest received is €111 million. The difference between interest income and interest received can be mainly explained by interest income of €73 million relating to our discontinued logistics and freight management business (included in financing relating to our discontinued operations) and interest income relating to fair value adjustments on hedges of €9 million, also not having a cash effect.
ο 26 NET CASH USED IN FINANCING ACTIVITIES (continuing operations): -2,152 MILLION (2005: -768; 2004: -298)
Repurchases of shares
Under our share buy back programme announced on 6 December 2005 we purchased 27.8 million of our ordinary shares in 2006 for an amount of €769 million, of which €17 million, relating to the ordinary shares purchased in the last days of 2005, was paid in 2006. Under our share buy back programme announced on 6 November 2006 we purchased for an amount of €887 million, 27.6 million of our ordinary shares of which 18.2 million from the State of the Netherlands. As at 31 December 2006, we paid €881 million relating to 27.5 million shares with the remainder of the amount being paid in 2007.
In addition to the share buy back programmes we purchased 2.7 million ordinary shares for an amount of €79 million to cover our obligations under the existing management option plans and share grants.
TNT received cash payments of €52 million (2005: 16) for the exercise of employee stock options in 2006. The increase results from the accelerated vesting of logistics participants and an increase in the number of regular exercises.
Repayments to long term borrowings
The total repayments relating to long term borrowing of €53 million (2005: 2; 2004: 16) related mainly to repayments of bank loans. The scheduled payments on aircraft leases and other leases amount to €10 million (2005: 4; 2004: 9).
Proceeds from and repayments to short term borrowings
Movements in short term liabilities resulted in a net cash inflow of €166 million (2005 (outflow): 50; 2004: 37). The total repayments to short term borrowings mainly relates tot the repayment of the bilateral bullet loan agreement maturing in 2006 of €129 million, to a decrease of bank overdrafts of €32 million and to repayments on short term leases of €4 million (2005: 47, 2004: 0) partly offset by a cash inflow relating to short term liabilities of €328 million (2005: 14; 2004: 8), of which €287 million relates to our commercial paper programme and €41 million to an increase of bank facilities.
Dividends paid
A final cash dividend over 2005, amounting to €173 million or €0.41 per ordinary share and a cash interim dividend for 2006 of €109 million or €0.26 per ordinary share were paid in 2006.
Financing related to our discontinued operations
In 2006 the net cash flow used in financing our discontinued logistics business and freight management amounted to €276 million (2005: 21; 2004: -135). This mainly relates to the repayment of €215 million of the Canadian dollar denominated, syndicated facility that was signed in May 2001 before completion of the sale of our logistics business to Apollo.
ο 27 RECONCILIATION TO CASH AND CASH EQUIVALENTS
The following table presents a reconciliation between the cash flow statements and the cash and cash equivalents as presented in the balance sheet.
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| Year ended at 31 December | |||||
| 2006 | variance % | 2005 | variance % | 2004 | |
| Cash at the beginning of the year | 663 | 4.7 | 633 | 34.7 | 470 |
| Adoption of IAS 32/39 per 1 January 2005 ¹ | 46 | ||||
| Cash from divested Logistics business | (48) | ||||
| Exchange rate differences | (5) | 16 | (5) | ||
| Total change in cash (as in consolidated cash flow statements) | (284) | (32) | 168 | ||
| Cash at the end of the year | 326 | (50.8) | 663 | 4.7 | 633 |
| of which dicontinued business | (29) | (104) | |||
| Cash at the end of the year as reported | 297 | (46.9) | 559 | (11.7) | 633 |
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