TNT Annual Report and Form 20-F 2006 Print this page

Financial Statements

Additional notes

ο 28 BUSINESS COMBINATIONS

Summary of principal acquisitions in the year 2006

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Company name	Segment	Month acquired	% owner	Acquisition Cost	Goodwill on Acquisition
TG Plus Transcamer Gomez S.A.U.	Express	January	100%	22	34
ARC India Private Ltd.	Express	September	100%	33	23
PostCon Deutschland A.G.	Mail	October	99%	22	17
Mail Express GmbH	Mail	January	100%	6	6
Turbo P.O.S.T. GmbH	Mail	April	74%	4	4
CBS City briefservice GmbH	Mail	April	100%	4	4
Ridas Sicherheits- und Handelsgesellschaft m.b.H.	Mail	November	100%	3	3
Other acquisitions (including remaining shares)				16	8
Total				110	99
(in € millions)

Additions in 2006 include €99 million (2005: 26) 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 2006 have generally centered on addressing our long term strategic plans. All acquisition costs paid or to be paid, are paid in cash. Of the total acquisition costs an amount of €89 million is paid in cash in 2006. The acquisition costs shown also include an amount of €5 million of acquired cash. Furthermore the acquisition cost includes an amount of €16 million to be paid as at 31 December 2006. This reflects contingent consideration costs, of which PostCon Deutschland AG is the main acquisition involved.

In respect of the acquisition of PostCon Deutschland AG a maximum amount of €5 million is dependent on the revenue and earnings before interest and taxes realised in the business for each of the years 2006 and 2007.

The acquisition cost of TG Plus Transcamer Gomez S.A.U. of €22 million reflects the agreed enterprise value of €49 million less agreed adjustments of €27 million relating to loans, financial lease obligations and some smaller items.

Loans for an amount of €23 million have been repaid by us on the moment of acquisition.

The pre-acquisition balance sheet and the opening balance sheet of the acquired businesses is summarised in the table below:

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	Pre-acquisition balance sheets(unaudited)	Acquisitions
Goodwill	1	99
Other non-current assets	13	45
Total non-current assets	14	144
Total current assets	49	48
Total assets	63	192

Equity	(15)	115
Non-current liabilities	28	27
Current liabilities	50	50
Total liabilities and equity	63	192
(in € millions)

Other non-current assets include an amount of approximately €31 million relating to separately identified intangible assets with respect to 2006 acquisitions.

The largest acquisitions in 2006 relate to ARC India Private Limited, TG Plus Transcamer Gomez S.A.U. and PostCon Deutschland AG. On acquisition an amount of goodwill was recognised. The main factors that contributed to a cost that resulted in the recognition of goodwill are summarized below:

TG Plus Transcamer Gomez S.A.U. is the third largest industrial parcel operator in Spain and a strategic fit for Express Europe.
Acquiring Arc India Private Ltd. is in line with TNT’s strategic objective to become the leading provider of express deliveries in the emerging markets in Asia, specifically India. We believe that combining Arc India Private Ltd. ‘s strong domestic road network with TNT’s international and domestic networks will form a powerful platform for further expansion in the fast growing Indian express market.
In Germany, one of the key mail markets in Europe, we reinforced our position as the number one challenger in the German market for delivering addressed mail by the acquisition of PostCon Deutschland AG, the market leader in mail consolidation in Germany. Through this acquisition we now have a solid basis for rapid growth once the postal market has been fully liberalised in Germany.

The (pre-) acquisition balance sheets in ARC India Private Ltd.,TG Plus Transcamer Gomez S.A.U. and PostCon Deutschland AG are separately shown below:

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Balance sheets	TG Plus Transcamer Gomez S.A.U.		ARC India Private Ltd.		PostCon Deutschland A.G.
	Pre-acquisition (unaudited)	Acquisition	Pre-acquisition (unaudited)	Acquisition	Pre-acquisition (unaudited)	Acquisition
Goodwill		34		23		17
Other non-current assets	3	8	1	11	1	8
Total non-current assets	3	42	1	34	1	25
Total current assets	21	21	7	7	8	8
Total assets	24	63	8	41	9	33

Equity	(22)	17		32	1	25
Non-current liabilities	24	24	1	1
Current liabilities	22	22	7	8	8	8
Total liabilities and equity	24	63	8	41	9	33
(in € millions)

Acquiree’s results

The total acquiree’s result accounted within TNT, since acquisition date, amounts to €-14 million. This relates to TG Plus Transcamer Gomez S.A.U. for an amount of €-10 million, to Arc India Private Limited for an amount of €-2 million, to PostCon Deutschland AG for an amount of €1 million and to miscellaneous smaller items for an amount of €-3 million.

Pro-forma results

The following represents the pro-forma results of TNT for 2006 and 2005 as if these acquisitions had taken place on 1 January 2005. These pro-forma results do not necessarily reﬂect the results that would have arisen had these acquisitions actually taken place on 1 January 2005, nor are they necessarily indicative of the future performance of TNT. This calculation also includes the impact of amortisation of identified intangible assets.

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Year ended at 31 December
	Pro-forma results (unaudited)		As reported
	2006	2005	2006	2005
Total group revenues	10,114	9,493	10,060	9,329
Profit for the period from continuing operations	824	745	828	770
Profit attributable to the equity holders of the parent	666	634	670	659
Earnings per ordinary share(in € cents)	158.3	139.5	159.3	145.0
Earnings per diluted ordinary share(in € cents)	157.1	138.9	158.1	144.4
(in € millions, except per share data)

ο 29 COMMITMENTS AND CONTINGENCIES

(No corresponding ﬁnancial statement number)

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At 31 December
	2006	2005
Commitments relating to:
Financial guarantees	211	191
Operating guarantees	137	76
Rent and operating lease	909	1,251
Capital expenditure	150	16
Repurchases own shares	113	769
Purchase commitments	58	100
(in € millions)

Commitments and contingencies as at 31 December 2005 related to our discontinued logistics business amounts to €706 million. The total guarantees of freight management as at 31 December 2006 amounted to €32 million, of which €12 million related to corporate guarantees and €20 million to bank guarantees. All the guarantees of the discontinued freight management business were financial guarantees.

Of the total commitments indicated above, €662 million are of a short term nature (2005: 1,128).

Financial and operating guarantees

Total guarantees at 31 December 2006 were €348 million (2005: 267). Of these guarantees, TNT issued corporate guarantees up to the amount of €183 million (2005: 99). Banks and other financial institutions issued guarantees up to the amount of €165 million (2005: 147). The obligations under the bank guarantees have been secured by our company or its subsidiaries.

Of the amount of €348 million, financial guarantees amounted to €211 million (2005: 191) and were mainly issued in connection with our obligations under lease contracts, custom duty deferment, airline cargo services, credit lines and insurance contracts. Operating guarantees amounted to €137 million (2005: 76) and were mainly issued in connection with mailing and other service performance contracts.

Rent and operating lease contracts

In 2006 operational lease expenses (including rental) in the consolidated statements of income amounted to €375 million (2005: 380; 2004: 304). Future payments on non-cancellable existing lease contracts mainly relating to real estate, computer equipment and other equipment were as follows:

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At 31 December
Payable in the period	2006	2005
Less than 1 year	222	229
Between 1 and 2 years	199	210
Between 2 and 3 years	146	182
Between 3 and 4 years	102	140
Between 4 and 5 years	65	105
Thereafter	175	385
Total	909	1,251
of which guaranteed by a third party/customers		3
(in € millions)

Capital expenditure

Commitments in connection with capital expenditure are €150 million (2005: 16; 2004: 33), of which €148 million is related to property, plant and equipment including €110 million which is related to aircraft and €2 million related to intangible assets. These commitments primarily related to projects within the operations of the express division.

Repurchase of shares

Under the €1,000 million repurchase programme, announced on 6 November 2006 (also refer to note 9) we purchased shares for a total amount of €113 million after 31 December 2006. As at 23 January 2007, we have completed the repurchase programme.

Purchase commitments

At 31 December 2006 we had unconditional purchase commitments of €58 million (2005: 100; 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 2006, TNT continued to investigate and analyse its global tax position As a result we currently estimate a range of €100 - €250 million to reflect the realistic range of our total contingent liability in this regard.

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. 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.

As previously disclosed, since August 2004, we have been preparing an addendum to our original report to the UK tax authorities that cover UK tax matters that were not the subject of the original investigation. In 2006 we submitted a substantially advanced draft of available information and related tax conclusions required by the UK tax authorities and started discussions with them on these tax matters.

The major issue being discussed with the UK tax authorities concerns whether some of our non-UK subsidiaries might have been resident in the United Kingdom prior to the acquisition of TNT Limited in December 1996 and, if so, whether capital gains tax would have been due if the tax residency of those subsidiaries later moved to another European country.

After having investigated the matter we are of the opinion that the relevant subsidiaries were never UK resident But even if they were seen to be UK resident, we believe that the imposition of such a capital gains tax would be impermissibly discriminatory under EU law. Our opinion has been and is supported by strong external specialist advice.

We have been in discussion with the UK tax authority to come to an agreement on these issues. While to date no assessments relating to the item under discussion have been raised, the UK tax authority will issue initial assessments, as we understand it, as a matter of procedure, before they and we can effectively continue to seek an agreed solution. TNT will appeal against the initial assessments. The amounts raised in such initial assessments could exceed the realistic range of our estimated total contingent liability as disclosed above. It is customary in the UK with respect to such initial assessments that the actual obligation for payment will be deferred during the litigation and appeal period until either an agreement is reached or a final assessment is raised. On the basis of our ongoing discussions with the UK tax authorities and the strength of our position, we currently expect either these matters to be settled in 2007 or if necessary litigation to be commenced.

In late 2005 and early 2006 our audit committee conducted an independent investigation with respect to whether illegal acts occurred in connection with certain past tax matters. Although the investigation concluded that such acts had occurred, it was determined in February 2006 that no provision or contingent liability was required as a result of this investigation.

We have also analysed the tax positions of some of our subsidiaries with respect to other countries. Our investigations and analyses concerned, among other things, the substance and implementation of tax structures set up in connection with the acquisition, in December 1996 (prior to our formation in 1998), by our former parent company of the Australian company TNT Limited through a UK subsidiary, and the integration and structuring of those and related businesses after our demerger in 1998. In early 2006 we actively discussed these structures with the relevant tax authorities and have reached an agreement on these matters.

As part of a pilot publicly announced by the Dutch Ministry of Finance, we signed a compliance covenant with the Dutch tax authorities in early 2006 to self-assess and transparently discuss our past, present and future tax issues with the Dutch tax authorities. The Dutch tax authorities have agreed, in turn, to take a clear position on such issues swiftly. In 2006 all relevant past matters presented and discussed have been concluded upon by the Dutch tax authorities and agreed with us.

We have fully accrued the expected cost in our financial statements for 2006 of all of the matters described above, whether agreed or expected to be agreed. From the extensive review to date of our global tax position, on the basis of the facts and circumstances as currently known, the advice received from external advisors and the discussions we have had with various tax authorities some of which are still ongoing, we currently believe that it is unlikely that we will incur an additional liability beyond what we have accrued to date. Our interpretation of past facts and circumstances and relevant tax laws and regulations may be open to challenge or as stated above lead to tax assessments being raised. In addition it is not certain that litigation can be avoided in all cases. 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.

We currently believe that it is unlikely that we will incur an additional liability related to the above matters beyond what we have accrued to date.

We disclosed in our 2005 annual report an estimate of a realistic range to reflect our total contingent liability, including potential penalties and interest, of €150 - €550 million, based on a probability-weighted assessment of our estimated total theoretical liability. In April 2006 we disclosed that we reduced the range to €100 - €250 million which we continue to believe to be the realistic range to reflect our contingent liability. This range represents some 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, any expected initial assessments were unsuccessfully challenged by us, 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 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 positions 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.

If the actual taxes, penalties and interest imposed exceed the amounts we have accrued, it could adversely affect our ﬁnancial position, results and cash ﬂows.

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.

Subcontractor suits in France

Over the years, the authorities in France have brought several criminal and civil actions relating to our express division’s French operations alleging that our subcontractors or their employees should be regarded as our own unregistered employees. The actions variously seek criminal ﬁnes or the payment of social security contributions, wage taxes and overtime payments in respect of such employees. Similar actions have been brought against our competitors.

Of the cases on which we reported in our annual report in 2006, the case that pertains to fines imposed on TNT Express International SNC and its regional operations director under a ruling by the Court of Appeal in Paris has not yet been concluded. Following a rejection of our request by the French Supreme Court, we have brought this matter to the attention of the European Court of Human Rights. We obtained discharges of the other cases relating to subcontractors previously reported.

Liège court case

In Belgium, judicial proceedings were launched by people living around Liege airport to stop night flights and seek indemniﬁcation from the Walloon Region, Liege airport and its operators (including TNT). On 29 June 2004 the Liege court of appeal rejected the plaintiffs’ claims on the basis of a substantiated legal reasoning. Thereupon, the plaintiffs lodged an appeal with the Belgian Supreme Court, which court may only examine pure points of law or procedural items. It does not examine facts. On 14 December 2006, the Supreme Court decided to postpone its rendering of a decision, and filed two pre-judicial questions with the European Court of Justice (ECJ). As a result, it may now take another two to three years before the outcome of the proceedings before the Supreme Court is known. Should the Supreme Court ultimately decide to cancel the 2004 judgement, the matter will be referred to another Belgian Court of Appeal for a new exchange of briefs, pleadings and ruling.

ο 30 EARNINGS PER SHARE

(No corresponding financial statement number)

To compute diluted earnings per share, the average number of shares outstanding (excluding the special share) is adjusted for the number of all potentially dilutive shares. At 31 December 2006 we had potential obligations under stock option and share grants to deliver 4,553,308 shares (2005: 9,023,090; 2004: 10,080,990). There was no difference in the income attributable to shareholders in computing our basic and diluted earnings per share.

For calculating basic earnings per share, an average 420,701,641 ordinary shares is taken into account. For calculating diluted earnings per share an additional average number of 3,157,581 shares is to be taken into account.

The following table summarises our computation related to earnings per share and diluted earnings per share:

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Year averages and numbers at 31 December
	2006	2005
Number of issued and outstanding ordinary shares	422,767,600	497,999,999
Shares held by the company to cover share plans	2,884,441	3,791,438
Shares held by the company for cancellation	27,640,543	29,460,477

Average number of ordinary shares per year	420,701,641	454,367,662
Diluted number of ordinary shares per year	3,157,581	1,992,957
Average number of ordinary shares per year on fully diluted basis in the year	423,859,222	456,360,619

ο 31 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. Our only signiﬁcant joint venture as at 31 December 2006 is the 50% interest in Postkantoren B.V. with Postbank N.V. to operate post ofﬁces in the Netherlands.

Key pro rata information regarding all of our joint ventures in which we have joint decisive inﬂuence over operations is set forth below and includes balances at 50%:

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Year ended at 31 December
	2006	2005	2004
Non-current assets	54	62	56
Current assets	182	200	202

Equity	56	64	60
Non-current liabilities	95	113	119
Current liabilities	85	85	79

Net sales	395	408	377
Operating income	18	16	15
Profit attributable to the shareholders	10	12	9

Net cash provided by operating activities	22	26	14
Net cash used in investing activities	(8)	(19)	(9)
Net cash used in financing activities	(14)	(7)	(22)
Changes in cash and cash equivalents	0	0	(17)
(in € millions)

ο 32 RELATED PARTY transactions WITH THE STATE OF THE NETHERLANDS

(No corresponding ﬁnancial statement number)

The State of the Netherlands as shareholder

Over the years 2004 – 2006 the State of the Netherlands reduced its holding in TNT step by step to nil.

On 29 September 2004, the State of the Netherlands sold a total of 77.7 million ordinary shares in our company reducing its ownership from 34.8% to 18.6% of the then outstanding share capital. We repurchased 20.7 million of these shares. Transfer of the repurchased ordinary shares took place in two tranches. A 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 a further 43.3 million ordinary shares in a private placement to ABN Amro Holding and Citigroup reducing its holding to approximately 10% of the share capital outstanding at the time.

On 20 November 2006 the State of the Netherlands sold its remaining shares in TNT. 27.8 million ordinary shares were acquired by Citibank and UBS, and 18.2 million ordinary shares were repurchased by TNT.

Special share

Until 17 November 2006, the State of the Netherlands held the one special share in our company. It gave the State of the Netherlands the right to approve decisions that lead to fundamental changes in our group structure, 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 TNT 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 TNT Post B.V.

The State of the Netherlands had committed itself to exercising the rights attached to the special share only to safeguard the general interest in having an efficient operating postal system in the Netherlands and also to protect its ﬁnancial interest as a shareholder. Further restrictions to exercising the rights attached to the special share and to transferring or encumbering the special share applied.

On 28 September 2006 the European Court of Justice ruled that ownership by the State of the Netherlands of the special share is in contravention of EU law.

On 17 November 2006, the special share was transferred for free to TNT. As per that date, the special control rights attached to this share reverted to the company. At our next Annual General Meeting of Shareholders we will propose to convert the special share into an ordinary share as part of an amendment to our articles of association. As a result the rights attached to the special share will terminate at such time as the amendment to articles is effected. We agreed not to exercise the rights attached to the Special Share or sell the Special Share in the interim period.

The State of the Netherlands as customer

The State of the Netherlands is a large customer of ours, purchasing services from us on an arm’s-length basis. In addition, the State of the Netherlands may by law require us to provide certain services to the State of the Netherlands in connection with national security and the detection of crime. These activities are subject to strict legal scrutiny by the Dutch authorities.

The State of the Netherlands as regulator

The postal system in the Netherlands is regulated by the State of the Netherlands. See note 37 of our ﬁnancial statements.

ο 33 OTHER RELATED PARTY TRANSACTIONS AND BALANCES

(No corresponding financial statement number)

The TNT group companies have trading relationships with a number of joint ventures as well as with unconsolidated companies in which we hold minority shares. In some cases there are contractual arrangements in place under which TNT companies source supplies from such undertakings, or such undertakings source supplies from TNT.

During 2006, sales made by TNT companies to its joint ventures amounted to €8 million (2005: 42; 2004: 24). Purchases of TNT from joint ventures amounted to €103 million (2005: 131; 2004: 125). The net amounts due to our joint venture entities amounted to €58 million (2005: 49; 2004: 49). As at 31 December 2006, no material amounts were payable by TNT to associated companies. All transactions with joint ventures and investments in associates are conducted in the normal course of business and under arm’s length commercial terms and conditions.

ο 34 SEGMENT INFORMATION

(No corresponding financial statement number)

The presentation of specific data from the consolidated financial statements is classified by divisions and geography. The primary reporting format is based on the corporate divisions. TNT distinguishes between the following corporate divisions:

Express business. The express business provides demand door-to-door express delivery services for customers sending documents, parcels and freight.
Mail business. The mail business provides services for collecting, sorting, transporting and distributing domestic and international mail.

In 2006 and 2005 the decision was taken to respectively divest the freight management business and the logistics business. As a consequence the discontinued business was not included in the segment information shown.

The pricing of intercompany sales is done at arms’ length.

The secondary reporting format is based on geography:

The basis of allocation of net sales by geographical areas is the country or region in which the entity recording the sales is located.
Segment assets and investments are allocated to the location of the assets, except for TNT goodwill which is not allocated to other countries or regions.

Primary segmentation - results

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Year ended at 31 December 2006
	Express	Mail	Inter- company	Non-allocated	Total
Net sales	5,922	4,025		1	9,948
Inter-company sales	9	8	(17)
Other operating revenues	80	32			112
Total operating revenues	6,011	4,065	(17)	1	10,060
Other income	6	58		1	65
Depreciation/impairment property, plant and equipment	(142)	(107)		(6)	(255)
Amortisation/impairment intangibles	(34)	(28)		(1)	(63)
Total operating income	580	761		(65)	1,276
Net financial income/(expense)					(47)
Results from investments in associates					(6)
Income tax					(395)
Profit/(loss) from discontinued operations					(157)
Profit for the year					671
Attributable to:
Minority interests					1
Equity holders of the parent					670

Number of employees	54,060	84,731		431	139,222
(in € millions, except employees)

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Year ended at 31 December 2005
	Express ¹	Mail ¹	Inter- company	Non-allocated	Total
Net sales	5,324	3,921		29	9,274
Inter-company sales	9	9	(18)
Other operating revenues	30	25			55
Total operating revenues	5,363	3,955	(18)	29	9,329
Other income		26		12	38
Depreciation/impairment property, plant and equipment	(139)	(108)		(5)	(252)
Amortisation/impairment intangibles	(31)	(20)			(51)
Total operating income	476	775		(103)	1,148
Net financial income/(expense)
Results from investments in associates					(2)
Income tax					(376)
Profit/(loss) from discontinued operations					(109)
Profit for the year					661
Attributable to:
Minority interests					2
Equity holders of the parent					659

Number of employees	48,845	76,619		836	126,300
(in € millions, except employees) 1 Figures have been adjusted to reflect the transfer of Cendris UK from mail to express in 2006.

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Year ended at 31 December 2004
	Express ¹	Mail ¹	Inter- company	Non-allocated	Total
Net sales	4.933	3.841		24	8.798
Inter-company sales	6	6	(12)
Other operating revenues	24	5			29
Total operating revenues	4.963	3.852	(12)	24	8.827
Other income		8			8
Depreciation/impairment property, plant and equipment	(136)	(109)		(2)	(247)
Amortisation/impairment intangibles	(29)	(19)		(1)	(49)
Total operating income	378	803		(71)	1.110
Net financial income/(expense)					(16)
Results from investments in associates					(2)
Income tax					(372)
Profit/(loss) from discontinued operations					32
Profit for the year					752
Attributable to:
Minority interests
Equity holders of the parent					752

Number of employees	46.502	81.129		430	128.061
(in € millions, except employees) 1 Figures have been adjusted to reflect the transfer of Cendris UK from mail to express in 2006.

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Year ended at 31 December
Non-allocated operating income	2006	2005	2004
Non-core disposals		12
Business initiatives	(27)	(61)	(38)
World Food Programme	(8)	(9)	(9)
Other costs	(30)	(45)	(24)
Total	(65)	(103)	(71)
(in € millions)

2006/2005

In 2006, non-allocated operating costs amounted to €65 million (2005:103). Included in these costs is €27 million (2005: 61) for business initiatives, of which €25 million (2005: 33) relates to the continuing development of our activities in China. As a result of maturing operations, more employees were allocated to the respective express and mail businesses. As a result, the average number of full-time equivalents employed for the development initiatives decreased from 485 at the end of 2005 to 201 at year end 2006. The remaining costs for the business initiatives decreased from €28 million in 2005 to €2 million in 2006. This reduction is a result of lower costs for the rebranding of non TNT branded companies into TNT brand and the allocation of costs for a procurement initiative and a cost efficiency project for lean warehousing to the respective operations. Costs made to support the World Food Programme were €8 million (2005: 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 €30 million (2005: 45), which represent a decrease of €15 million compared to 2005. This decrease mainly relates to higher costs in 2005 as a consequence of 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. Furthermore, the costs for tax investigations decreased from €23 million in 2005 to €21 million in 2006.

2005/2004

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).

Primary segmentation – balance sheet information

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At 31 December 2006
	Express	Mail	Non-allocated	Total
Goodwill paid in the year	58	41		99
Intangible assets	1,480	301	4	1,785
Capital expenditure on property, plant and equipment	329	84	4	417
Property, plant and equipment	1,015	651	12	1,678
Investments in associates	1	1	56	58
Accounts receivable	1,025	415	121	1,561
Total assets ¹	4,006	1,611	691	6,308
Total liabilities ²	1,388	1,380	1,532	4,300
(in € millions) 1 Identifiable assets also used for the segments have been allocated on the basis of estimated usages. The impact of our discontinued freight management business is included in the non-allocated segment. 2 Includes all liabilities (non-current, current). The impact of our discontinued freight management business is included in the non-allocated segment.

The balance sheet information at 31 December 2005 is as follows:

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At 31 December 2005
	Express ¹	Mail ¹	Freight Management	Non-allocated	Total
Goodwill paid in the year	5	21			26
Intangible assets	1,358	264	213	3	1,838
Capital expenditure on property, plant and equipment	140	80	3	10	233
Property, plant and equipment	832	695	9	16	1,552
Investments in associates			3	44	47
Accounts receivable	935	383	127	26	1,471
Total assets ²	3,513	2,099	406	2,378	8,396
Total liabilities ³	1,052	1,453	156	2,456	5,117
(in € millions) 1 Figures have been adjusted to reflect the transfer of Cendris UK from mail to express in 2006. 2 Identifiable assets also used for the segments have been allocated on the basis of estimated usages. The impact of our discontinued logistics business is included in the non-allocated segment. 3 Includes all liabilities (non-current, current). The impact of our discontinued logistics business is included in the non-allocated segment.

Secondary segments – geographical

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

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Year ended at 31 December
	2006	2005	2004
Europe
The Netherlands	3,633	3,671	3,637
United Kingdom	1,349	1,229	1,173
Italy	774	701	652
Germany	950	818	735
France	649	632	609
Belgium	277	297	273
Rest of Europe	1,130	866	756
Americas
USA and Canada	74	73	81
South & Middle America	43	39	33
Africa & the Middle East	89	72	58
Australia & Pacific	442	421	404
Asia
China and Taiwan	288	238	191
India	51	32	27
Rest of Asia	199	185	169
Total net sales	9,948	9,274	8,798
(in € millions)

The location of the total assets of our company at 31 December 2006 and the capital expenditures (including finance leases) in 2006 were as follows:

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At 31 December 2006
	Intangible assets	Property, plant and equipment	Financial fixed assets	Total non-current assets	Current assets	Total assets	Capital expenditures
Europe
The Netherlands ¹	1,005	692	104	1,801	493	2,294	108
United Kingdom	168	464		632	310	942	176
Italy	45	36	36	117	286	403	17
Germany	117	64	125	306	154	460	19
France	287	66	12	365	155	520	16
Belgium	31	202	4	237	81	318	124
Rest of Europe	67	52	8	127	322	449	22
Americas
USA and Canada		3	1	4	18	22	2
South & Middle America	1	2	1	4	24	28	1
Africa & the Middle East	2	4		6	34	40	4
Australia & Pacific	21	70	16	107	59	166	13
Asia
China and Taiwan	5	8		13	99	112	9
India	35	4	2	41	23	64	4
Rest of Asia	1	11	5	17	64	81	5
Total	1,785	1,678	314	3,777	2,122	5,899	520
(in € millions) 1 Including TNT goodwill which is not allocated to other countries or regions.

For 2005, the assets and capital expenditures on property, plant and equipment can be specified as follows:

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At 31 December 2005
	Intangible assets	Property, plant and equipment	Financial fixed assets	Total non-current assets	Current assets	Total assets	Capital expenditures
Europe
The Netherlands ¹	980	756	99	1,835	789	2,624	90
United Kingdom	163	400	1	564	323	887	49
Italy	34	32	40	106	254	360	9
Germany	73	57	85	215	113	328	7
France	288	62	3	353	141	494	12
Belgium	32	94	14	140	143	283	16
Rest of Europe	241	47	2	290	253	543	21
Americas
USA and Canada	1	3	2	6	41	47	2
South & Middle America		2	1	3	28	31	1
Africa & the Middle East		3		3	31	34	2
Australia & Pacific	20	74	19	113	67	180	12
Asia
China and Taiwan	4	11		15	97	112	7
India	1	2	1	4	10	14	1
Rest of Asia	1	9	6	16	65	81	4
Total	1,838	1,552	273	3,663	2,355	6,018	233
(in € millions) 1 Including TNT goodwill which is not allocated to other countries or regions.

The location of employees at year end, including temporary employees on our payroll, is as follows:

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	Express	Mail	Non-allocated	2006	2005	2004
Europe
The Netherlands	2,898	58,141	230	61,269	64,035	69,907
United Kingdom	11,822	682		12,504	11,857	11,702
Italy	3,101	1,183		4,284	4,217	4,353
Germany	5,255	15,218		20,473	17,979	16,106
France	4,687	30		4,717	4,664	4,528
Belgium	2,300	639		2,939	2,803	2,648
Rest of Europe	7,979	8,628		16,607	7,276	4,799
Americas
USA and Canada	758	202		960	978	1,199
South & Middle America	649			649	538	701
Africa & the Middle East	1,506	8		1,514	1,045	1,330
Australia & Pacific	5,011			5,011	4,928	5,027
Asia
China and Taiwan	2,418		201	2,619	2,461	2,250
India	2,399			2,399	668	537
Rest of Asia	3,277			3,277	2,851	2,974
Total	54,060	84,731	431	139,222	126,300	128,061

ο 35 DIFFERENCES BETWEEN IFRS AND US GAAP

(No corresponding financial statement number)

Profit for the year and 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:

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Year ended at 31 December
	2006	2005	2004
Profit attributable to the equity holders of the parent under IFRS	670	659	752
Adjustments for:
Employee benefits	4	(16)	61
Employment schemes: cancellation of contract			(130)
Employment schemes and group reorganisation			(11)
Real estate sale			20
Depreciation and amortisation related to discontinued logistics business	(60)	(8)
Impact of US GAAP differences on sale of logistics business	31
Other		(11)	(6)
Tax effect of adjustments	12	8	28
Profit attributable to the equity holders of the parent under US GAAP	657	632	714
of which related to discontinued operations	(173)	(131)	39
of which related to continuing operations	830	763	675
Earnings per ordinary share/ADS under US GAAP ¹ (in € cents)	156.2	139.1	151.9 ³
Earnings per diluted ordinary share/ADS under US GAAP ² (in € cents)	155.0	138.5	151.7 ³
(in € millions, except per share figures) 1 In 2006 based on an average of 420,701,641 of outstanding ordinary shares/ADS (2005: 454,367,662 ; 2004: 469,955,054), which is consistent under IFRS. 2 In 2006 based on an average of 423,859,222 of diluted outstanding diluted ordinary shares/ADS (2005: 456,360,619 ; 2004: 470,547,635), which is consistent under IFRS. 3 Number of shares used in calculation differ from number of shares used to calculate earnings per share under IFRS. The second tranche of shares repurchased from the State of the Netherlands were accounted for in 2004 under US GAAP and in 2005 under IFRS.

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At 31 December
	2006	2005	2004
Total equity under IFRS	2,008	3,279	3,344
Minority interest	(25)	(17)	(19)
Equity for the equity holders of the parent under IFRS	1,983	3,262	3,325
Adjustments for:
Employee benefits	(5)	18	34
Other long lived intangible assets	147	43	(45)
Other intangible assets amortisation	(7)	(10)	(7)
Repurchase of shares			(259)
Pension liability ¹	(539)	(587)	(454)
Depreciation and amortisation related to our discontinued logistics business		(8)
Other	(1)	(6)	(8)
Deferred taxes on adjustments	(7)	45	36
Total equity under US GAAP	1,571	2,757	2,622
(in € millions) 1. As at 31 December 2006 the minimum pension laibility is no longer recorded as a consequence of the adoption of FAS 158. In 2006 the pension liability was increased by €500 million (net of tax) due to the adoption of this pronouncement. The impact of FAS 158 within equity was offset by an overall reduction in the pension liability in 2006, primarily due to an increase in the discount rate from 4.3% to 4.7%. The comparative figures have not been adjusted.

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 €15 million, €10 million and €16 million under US GAAP than under IFRS in 2006, 2005 and 2004, respectively. In 2006, the lower pension expense is partially offset by a curtailment gain of €11 million under IFRS that is not recognised in the statements of income under US GAAP because this is fully offset by unrecognised losses. The curtailment relates to an efficiency incentive of Mail Netherlands and the sales of the logistics business and Cendris Document Management.

In 2005 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. The majority of the differences related to such obligations no longer exist as of 31 December 2006 due to the sale of the logistics division.

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 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 statements 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 unwound 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.

Real estate sales

Due to timing differences when to account for gains on sale of real estate between IFRS and US GAAP, there is a difference in the statements of income in 2004 of €20 million caused by the fact that for certain real estate transactions in prior years, the legal ownership was not transferred until 2004, resulting in a book proﬁt under US GAAP (already accounted for in prior years under IFRS at the moment the economic risk was transferred). There were no such differences in 2006 and 2005.

Discontinued operations

As a result of our December 2005 announcement to focus on our core competency of providing delivery services, we presented assets and liabilities of our discontinued logistics business as long lived assets to be disposed of by sale and presented our proﬁt (loss) for the period from our discontinued logistics business as proﬁt (loss) from discontinued operations. As required under IFRS 5, Non-current Assets Held for Sale and Discontinued Operations, we have not depreciated or amortised, since 6 December 2005, our assets held for sale. On 4 November 2006 we have sold our logistics business.

In 2005 IFRS 5, Non-current Assets Held for Sale and Discontinued Operations, required us to classify non-current assets or a disposal group as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use. We met all the criteria as required under IFRS 5 for such classification.

The position of the SEC is that in the event shareholder approval is required, management is not considered having authority to dispose of an asset, a requirement in accordance with US GAAP to treat such assets as being held for sale. Accordingly, under US GAAP this criteria was not met until 29 September 2006. The French logistics business met all criteria and was presented as discontinued operations in 2005 and the remainder of the logistics business was presented as part of continuing operations, whose assets continued to be depreciated.

At 29 September 2006 the Extraordinary General Meeting of Shareholders approved the sale of the remaining logistics division. Due to the approval, the US GAAP statements of income have been restated in to reflect the entire logistics division as discontinued operations.

Depreciation and amortisation from 1 January 2006 to 29 September 2006 and 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 €60 million and €8 million, respectively. These amounts are included as reconciling items between IFRS and US GAAP.

On 4 November 2006 we completed the sale of the logistics division to affiliates of Apollo Management L.P. Under IFRS we recognised a loss on disposal of €87 million. Under US GAAP, we recognised a loss of €56 million. The difference is a result of a smaller loss due to differences in the valuation of assets and liabilities between IFRS and US GAAP offset by the release of a larger negative currency translation adjustment of €69 million.

During 2006 we accelerated the vesting of equity awards pertaining to our logistics business employees. This resulted in a remeasurement of such awards under US GAAP and recognition of €2 million additional compensation expense compared to IFRS.

other long lived intangible assets, business combinations and impairment of goodwill

As permitted under IFRS 1, First-time Adoption of International Financial Reporting Standards, we have not adjusted business combinations that took place prior to the 1 January 2004 transition date. Prior to 1 January 2004, goodwill on business combinations differed under our previous GAAP and under US GAAP mainly due to differences related to recognition of identiﬁable and separable intangible assets and recognition of certain provisions such as restructuring provisions. In addition, we continued to amortise goodwill under our previous GAAP until the adoption of IFRS.

We adopted SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets, for business combinations initiated after 30 June 2001. Effective 2002, the provisions of SFAS No. 142 were applied to goodwill and other intangible assets acquired prior to 30 June 2001. Since the adoption of SFAS No. 141 and SFAS No. 142 goodwill is no longer amortised, but tested, at least annually, for impairment.

The differences identified within our reconciliation of total equity pertaining to other long lived intangible assets are due to the reasons noted above as well as differences in our assessment of impairment based upon the requirements of our previous GAAP and IFRS compared to US GAAP.

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 €20 million and the accumulated amortisation was €7 million as at 31 December 2006. The impact of such amortisation has resulted in a reduction of profit of €3 million in 2006, 2005 and 2004; including €1 million in 2006 and €2 million in 2005 and 2004, respectively, related to our discontinued logistics business. These differences are included in the ‘other’ line item on our reconciliation of profit under IFRS to US GAAP.

The changes in the carrying amount of goodwill for the year ended 31 December 2006 are as follows:

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	Express	Mail	Total
Balance as at 1 January 2006	1,345	266	1,611
Additions	56	42	98
Disposals		(9)	(9)
Internal transfers/reclassifications	45	(24)	21
Exchange rate differences	5	(6)	(1)
Balance as at 31 December 2006	1,451	269	1,720
(in € millions)

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 per 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, was 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/FAS 158

Until the end of 2005 US GAAP required us 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.

As at 31 December 2005 and 2004, the ABO amounted to €5,194 million and €4,643 million, respectively. For certain of our pension plans in the Netherlands, in Germany, and in the United States the ABO exceeded plan assets, requiring us to record a minimum pension liability. The increase in the ABO was mainly due to a decrease in interest rates.

In September 2006 the FASB issues Financial Accounting Standard 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132(R) (FAS 158). FAS 158 requires companies to fully recognize an asset or liability for the overfunded or underfunded status of their benefit plans in the financial statements for years ending after 15 December 2006. The pension asset or liability equals the difference between the fair value of the plan’s assets and its benefit obligation. The benefit obligation is measured as the projected benefit obligation for pension plans and as the accumulated postretirement benefit obligation for other postretirement benefits. The impact of the company’s net funded status is to be recorded in equity as a component of accumulated other comprehensive income, net of tax. The impact of this standard for the year ended December 2006 resulted in a decrease in Accumulated other comprehensive income of €500 million (net of deferred tax assets of €171 million) an increase in plan assets of €135 million and an additional provision for pension liabilities of €807 million in our financial statements under US GAAP. The impact of the adoption of FAS 158 within equity was offset by an overall reduction in the pension liability in 2006 primarily due to an increase in the discount rate from 4.3% to 4.7%. As of 31 December 2006 the amount of unrecognised pension expense within accumulated other comprehensive income was €539 million, net of tax. The amounts in accumulated other comprehensive income expected to be recognised as components of net periodic benefit costs in 2007 are an amortised prior service cost credit of €39 million, offset by an amortised net actuarial loss of €37 million.

Share based payments

Prior to 1 January 2006, Statement of Financial Accounting Standards no. 123, Accounting for Stock-based Compensation(SFAS 123), encouraged, but did not require, companies to record compensation cost for stock based compensation plans at fair value. During 2004, we chose to continue to account for stock based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion no. 25, Accounting for Stock Issued to Employees(APB 25), and related interpretations. This resulted in the €6 million difference between the 2004 IFRS and US GAAP proﬁt attributable to shareholders included within the ‘other’ line item on our reconciliation of profit attributable to shareholders.

As all options were granted at an exercise price that equals the average price on the Amsterdam Stock Exchange on the day of grant, no charges would have been recorded in the 2002, 2003 and/or 2004 income statements. If the company had elected to recognise compensation expense based on the fair value at the grant dates in accordance with FAS 123, the company’s net income and net income per share would have decreased to the pro forma amounts indicated in the following table:

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Year ended at 31 December
	2004
Profit attributable to the equity holders of the parent
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 ordinary share and per ADS
As reported (in € cents)	158.7
As adjusted (in € cents)	157.0
( in € millions, except per share data)

Significant assumption used in our calculation of fair value is as follows:

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Year ended at 31 December
	2004
Risk free interest rate (%)	3.07
Dividend (in € cents per share)	57.0
Volatility (%)	21.7
Life op 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. When all of our share based 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.

In December 2004, the FASB issued a revised version of SFAS 123, Share based 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. Effective 1 January 2005, our share based payments for all future awards are measured using the Monte Carlo fair value measurement method. The adoption of SFAS 123(R) did not have an impact on our financial statements.

Other differences

SALE AND LEASEBACK TRANSACTIONS

Under IFRS, if a sale and leaseback transaction results in a ﬁnance lease, any excess of sales proceeds over the carrying amount shall be deferred and amortised over the lease term. If a sale and leaseback transaction results in an operating lease, any loss is generally recognised immediately. Recognition of gain is based on whether sale price is at, below or greater than fair value.

US GAAP has more speciﬁc accounting criteria for sale and leasebacks under SFAS No. 28, Accounting for Sales with Leasebacks, SFAS No. 66, Accounting for Sales of Real Estate, and SFAS No. 98, Accounting for Leases(SFAS No. 98). Under SFAS No. 98, a seller-lessee is required to make a determination whether the transaction qualiﬁes for sale and leaseback accounting. Where sale and leaseback transactions do not qualify for sale and leaseback accounting, they are required to be accounted for as ﬁnance leases.

Under US GAAP, gains on transactions qualifying as sale and leasebacks are recognised based on the degree to which the seller-lessee retains the right to use the real estate through the leaseback. Where the seller-lessee retains substantially all of the use of the property, the gain on the sale transaction is required to be deferred and amortised over the lease term. Where the seller-lessee retains only a minor use of the property, any proﬁt or loss generally is recognised at the date of sale. If the seller-lessee retains more than a minor part but less than substantially all of the use of the property, any proﬁt in excess of the present value of the minimum lease payments is recognised at the date of sale. Losses are recognised immediately upon consummation of the sale.

Differences between IFRS and US GAAP resulted in a cumulative effect of €5 million on shareholders’ equity to defer gains on sale of property and to realise these gains over the respective lease terms as at 31 December 2005. Due to the sale of the logistics division in 2006 we no longer have differences related to such transactions. These differences were previously included on the ‘other’ line item within our reconciliation of total equity from IFRS to US GAAP.

LONG TERM CONTRACT INCENTIVES

Under IFRS, expenses related to long term contract incentive payments made to induce customers to enter or renew long term service contracts may be deferred and accounted for over the contract period. Under US GAAP such payments may not qualify for deferral, and must be recognised fully in income in the initial period that the cost is incurred. We have paid certain long term contract incentives totaling €6 million that did not qualify for deferral under US GAAP. As a result, under US GAAP, such payments were recognised immediately in the income statement, while under IFRS they have been deferred and will be recognised over the term of the contract. This difference resulted in an adjustment to the US GAAP net income and shareholders’ equity in 2005 to reﬂect the reversal of the related annual charge to the income statement recorded under IFRS. Due to the sale of the logistics division in 2006 we no longer have differences related to such incentives.

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 2006 and 2005 we had no signiﬁcant differences between IFRS and US GAAP, in accounting for our derivative instruments.

GUARANTEES

We have provided certain indemnifications in 2006 related to the sale of our logistics division to Apollo Management L.P. 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(FIN 45). These provisions expand those required by Statements of Financial Accounting Standards 5, Accounting for Contingencies, by requiring the guarantor to recognize and disclose certain types of guarantees, even if the likelihood of requiring the guarantor’s performance is remote. The indemnifications we have provided relate to circumstance in which payment by us is conditional on claims made by Apollo Management L.P., which typically allow for us to challenge the claim. Further, our obligations under these agreements are limited in terms of time and / or amount.

It is not possible to predict the maximum potential amount of future payments under these or similar agreements due to the conditional nature of our obligations and the unique facts and circumstances involved in each particular agreement. There is no difference between the amounts which we have accrued under IFRS related to these indemnifications and the amounts we have accrued under US GAAP. We refer to note 12 of the consolidated financial statements.

The remainder of our guarantees are outside the scope of FIN 45 because they are guarantees of our own performance. We had no guarantees that met the criteria of FIN 45 in 2005.

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 2005 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. Due to the sale of the logistics division in 2006 we no longer have differences related to the recognition of curtailment gains.

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 2006.This also resulted in a difference at year end 2004. This difference amounted to €6 million and €3 million at year end 2006 and 2005, respectively, and is included on the ‘other’ line item within our reconciliation of total equity from IFRS to US GAAP.

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. This difference amounted to €1 million, €2 million and €3 million at year end 2006, 2005 and 2004, respectively, and is included on the ‘other’ line item within our reconciliation of total equity from IFRS to US GAAP.

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. Accordingly, we have established valuation allowances of €158 million (2005:133) and recorded as at 31 December 2006 net deferred tax assets of €63 million (2005:70). Under IFRS we have recorded the same amounts of net deferred tax assets.

Under IFRS, investments in joint ventures may be proportionately consolidated. In general, the proportionate consolidation method is prohibited under US GAAP. However, as allowed under the United States Securities and Exchange Commission’s (SEC) rules applicable to Form 20-F, no adjustment has been made for this difference as the joint ventures, in which we hold an investment, are operating entities for which we have joint control over the ﬁnancial operating policies with all other parties holding an interest in the respective joint venture.

We prepare our statement of cash ﬂows in accordance with requirements of IFRS, IAS No. 7, Cash Flow Statements. As permitted under the SEC’s rules applicable to Form 20-F, no adjustment has been made for any difference that may arise between IFRS and US GAAP.

Additional information related to roll forward of the equity, comprehensive income and accumulated other comprehensive income is included in the following tables:

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	Total equity
Equity for the equity holders of the parent under US GAAP at 31 December 2003	3,146
Profit attributable to shareholders over 2004 under US GAAP	714
Final dividend 2003 and interim dividend 2004	(237)
Translation adjustment IFRS	(29)
Translation adjustment on US GAAP reconciling items	(113)
Stock options exercised	3
Repurchase of shares 2004 plan October 2004 tranche	(151)
Repurchase of shares 2004 plan January 2005 tranche	(258)
Minimum liability for defined benefit plans	(454)
Other	1
Equity for the equity holders of the parent under US GAAP at 31 December 2004	2,622
Profit attributable to shareholders over 2005 under US GAAP	632
Final dividend 2004 and interim dividend 2005	(268)
Translation adjustment IFRS	8
Translation adjustment on US GAAP reconciling items	86
Stock options exercised	41
Additional liability for defined benefit plans	(133)
Repurchase of shares 2005 plan	(231)
Equity for the equity holders of the parent under US GAAP at 31 December 2005	2,757
Profit attributable to shareholders over 2006 under US GAAP	657
Final dividend 2005 and interim dividend 2006	(282)
Translation adjustment IFRS	11
Translation adjustment on US GAAP reconciling items	(8)
Share based compensation	15
Reduction of liability for defined benefit plans	48
Release of currency translation adjustment related to logistics business	69
Repurchase/cancellation of shares in 2006	(1,736)
Stock options exercised	52
Other	(12)
Equity for the equity holders of the parent under US GAAP at 31 December 2006	1,571
(in € millions)

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Year ended at 31 December
Comprehensive income	2006	2005	2004
Profit attributable to the equity holders of the parent under US GAAP	657	632	714
Unrealised forex gains and (losses) IFRS	11	8	(29)
Unrealised forex gains and (losses) US GAAP reconciling items	(8)	86	(113)
Decrease/(Increase) liability for defined benefit plans	48	(133)	(454)
Release of currency translation adjustment related to logistics business	69
Other	(9)		2
Comprehensive income under US GAAP	768	593	120
(in € millions)

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Year ended at 31 December
Accumulated other comprehensive income, net of related income taxes (under US GAAP)	2006	2005	2004
Opening accumulated comprehensive income	(822)	(783)	(189)
Unrealised forex gains and (losses) IFRS	11	8	(29)
Unrealised forex gains and (losses) US GAAP reconciling items	(8)	86	(113)
Decrease/(Increase) liability for defined benefit plans	48	(133)	(454)
Release of currency translation adjustment related to logistics business	69
Other	(9)		2
Total accumulated other comprehensive income, net of taxes (US GAAP)	(711)	(822)	(783)
(in € millions)

The total accumulated other comprehensive income, net of taxes, of €711 million mainly includes a pension liability of €539 million and the remainder consist of unrealised gains and losses on foreign currency translations.

Recent US GAAP accounting pronouncements

The Financial Accounting Standards Board in the United States (FASB) 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 September 2006 the FASB issued SFAS 157, Fair Value Measures,(SFAS 157). This statement enhances the guidance for using fair value to measure assets and liabilities. SFAS 157 provides a single definition of fair value, together with a framework for measuring it, and requires additional disclosure about the use of fair value to measure assets and liabilities. We are required to adopt this pronouncement effective 1 January 2008. We are evaluating the impact this standard will have on our financial statements.

In September 2006, the FASB issued FASB Staff Position (FSP) No. AUG Air-1, Accounting for Planned Major Maintenance Activities.The FSP prohibits the use of the accrue-in-advance method of accounting for planned major maintenance activities in annual and interim reporting periods. This FSP amends the requirements of American Institute of Certified Public Accountants (AICPA) Audit and Accounting Guide, Airlines. This FSP is effective for us starting 1 January 2007. We do not expect this FSP will have an impact on our financial statements related to the maintenance of our aircraft, as our current practice is to expense such maintenance costs when incurred.

In June 2006, the FASB issued FASB interpretation No. 48, Accounting for Uncertainty in Income taxes an interpretation of FASB Statement No. 109, Accounting for Income Taxes.This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. This interpretation is effective for us starting 1 January 2007. We are evaluating the impact this interpretation will have on our financial statements.

In June 2006, the Emerging Issues Task Force (EITF) of the FASB ratified EITF 06-2, Accounting for Sabbatical Leave and Other Similar Benefits Pursuant to FASB Statement No. 43, Accounting for Compensated Absences(SFAS 43). This pronouncement provides guidelines under which sabbatical leave or other similar benefits provided to an employee are considered to accumulate, as defined in SFAS 43. If such benefits are deemed to accumulate, then the compensation cost associated with a sabbatical or other similar benefit arrangement should be accrued over the requisite service period. The provisions of this pronouncement are effective for us starting 1 January 2007 and allow for either retrospective application or a cumulative effect adjustment approach upon adoption. We do not expect the adoption of this pronouncement will have a material impact on our financial statements.

In March 2006, the EITF of the FASB issued EITF 06-3, How Taxes Collected from Customers and Remitted to Governmental Authorities Should be Presented in the Income Statement (That is, Gross versus Net Presentation).This pronouncement requires disclosure of a companies accounting policy regarding the gross or net presentation of point-of-sales taxes such as sales tax and value-added tax. If taxes included in gross revenues are significant, the amount of such taxes for each period for which an income statement is presented should also be disclosed. This pronouncement is effective for us starting 1 January 2007. We do not expect that the adoption of this pronouncement will have a material impact on our financial statements as we report such revenues on a net basis.

The EITF of the FASB issued EITF 05-6, 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 were required to adopt this pronouncement effective 1 January 2006. The adoption of this pronouncement did not have an impact on our financial statements.

ο 36 Subsequent events

(No corresponding ﬁnancial statement number)

Acquisition Expresso Mercurio S.A.

On 10 January 2007 we announced the completion of the acquisition of 100% of the shares of Expresso Mercurio S.A. (Mercurio), the market leader in the Brazilian domestic express market. The acquisition price is €151 million.

The unaudited pre-acquisition balance sheet and the preliminary opening balance sheet of the acquired business are summarized below:

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	Pre-acquisition balance sheets (unaudited)	Expresso Mercurio S.A. (unaudited)
Goodwill		106
Other non-current assets	16	43
Total non-current assets	16	149
Total current assets	24	25
Total assets	40	174

Equity	21	151
Non-current liabilities	3	4
Current liabilities	16	19
Total liabilities and equity	40	174
(in € millions)

The unaudited revenues for 2006 amounted to €190 million. The unaudited net profit after tax amounted to €3 million.

The acquisition of Mercurio helps TNT in achieving our strategic intend to expand in emerging markets and to develop our global networks. Thanks to Mercurio we will increase our footprint in Brazil and the neighboring countries such as Chile, Argentina and Uruguay, while the current Mercurio customers can benefit from the worldwide coverage of the TNT network. The Brazilian economy is one of the fastest growing in the world, marked by high investments in the manufacturing sector (automotive, pharmaceutical/chemical industry), with expected growth rates for the domestic express market in the range of 10 to 15% annually in the coming years.

Repurchase programme

On 23 January 2007, we completed the €1,000 million repurchase programme, we had announced on 6 November 2006. After 2006 we purchased 3,307,164 shares at an average price of €34,22 per share for a total amount of €113 million. It is our intention to cancel the ordinary shares and request for such cancellation to be approved by our shareholders.

Sale of freight management business

On 16 November 2006 we signed a Sale and Purchase Agreement to sell our freight management business unit to the French logistics service provider Geodis SA. On 5 February 2007 we completed the sale. The total net proceeds are approximately €450 million. The book gain of the transaction is expected to be approximately €190 million. Final amounts will be calculated on the basis of completion accounts. The results of the transaction will be accounted for in our 2007 profit for discontinued operations.

Repurchase programme 26 February 2007

On 26 February 2007 we announced the start of a share repurchase programme of up to €400 million, to start as soon as possible after the Annual General Meeting of shareholders (AGM) on 20 April 2007. The programme follows the completion of the sale of our freight management business. It is our intention to cancel the ordinary shares acquired through the repurchase programme.

ο 37 POSTAL REGULATION AND CONCESSION

(No corresponding ﬁnancial statement number)

Due to the importance of postal services to society, regulation is a signiﬁcant factor in our mail business. The mandatory undertaking of certain postal activities in the Netherlands, some of which are exclusive to us, has been assigned to us in the Dutch Postal Act.

In the Netherlands, the key legislation regulating our mail activities is the Dutch Postal Act. The Dutch Postal Act requires TNT to perform the mandatory postal services in the Netherlands and it grants us exclusive rights to provide some of these services, the reserved postal services.

In connection with the Dutch Postal Act there is the parliamentary Postal Decree, which speciﬁes the services that constitute the mandatory postal services and deﬁnes the scope of the reserved postal services. The combination of these mandates and exclusive rights are commonly called the “Postal Concession”. The Postal Concession is performed by our subsidiary Royal TNT Post B.V.

Furthermore, there is a General Postal Regulations Decree, which speciﬁes our obligations regarding the performance of mandatory postal services and the transparency of the ﬁnancial accounting of these services according to the EU Postal Directive.

The responsibility for supervising our performance of the mandatory postal services lies with an independent Supervisory Authority for Post and Telecommunications established by the government, which is commonly called by its Dutch acronym OPTA. The Minister of Economic Affairs is responsible for postal regulation and policy.

On 16 December 2004 the Minister of Economic Affairs discussed his vision for the Dutch postal market with parliament. During this meeting parliament gave its support to the vision, which addressed issues such as full liberalisation, the scope of the mandatory postal services and tariff regulation. The vision for the Dutch postal market has been translated into the proposal for a new Dutch Postal Act that passed the Dutch government on 13 April 2006. The Dutch government’s policy contains the following elements:

full liberalisation of the Dutch postal market as of 1 January 2008 (conditional on full market liberalisation in the United Kingdom and Germany, i.e. the condition of a level playing ﬁeld),
we will be required to perform the mandatory postal services in the Netherlands for an undefined period,
the Postal Act and the scope of the mandatory postal services can be evaluated every four years,
rates for mandatory postal services will be regulated using a price cap system linked to inﬂation,
non-discrimination will be applicable to our mail services. Competitors and customers must be treated equally in terms of rates and conditions, and
the OPTA will be charged with monitoring the mandatory services and non-discrimination requirements.

We are pleased that the policy regarding liberalisation is conditional on the future de facto liberalisation in the United Kingdom and Germany, where further liberalisation is also scheduled to take place in 2006 and 2008 respectively.

The decision by the Dutch government to fully liberalise the Dutch postal market on 1 January 2008 and the proposal for a new Dutch Postal Act await approval of parliament. The dossier will probably be discussed during the course of 2007.

The Postal Concession

Mandatory postal services

The domestic mandatory postal services mainly consist of the conveyance against payment of standard single rates of the following postal items:

letters (including reply items) and printed matter with a maximum individual weight of two kilogrammes,
postal parcels with a maximum individual weight of 10 kilogrammes, and
registered, registered insured and registered value declared items.

In addition, bulk mail of letters up to an individual weight of 50 grammes (100 grammes prior to 1 January 2006), which are conveyed against separately agreed rates, are part of the mandatory postal services. Mandatory postal services also cover rental of P.O. boxes.

We are not required to provide the delivery of bulk printed matter such as advertising, magazines and newspapers, the delivery of bulk letters with an individual weight above 50 grammes and unaddressed mail items.

For international inbound and outbound mail, based on the Dutch Postal Act and in accordance with the rules of the Universal Postal Union (UPU), mandatory postal services mainly comprise conveyance against payment of both postal items at standard single rates and of bulk mail items at separately agreed rates with a maximum individual weight of two kilogrammes and of postal parcels with a maximum individual weight of 20 kilogrammes. In addition, mandatory postal services cover the postal services regulated by the UPU.

Reserved postal services

Under the Dutch Postal Act and the Postal Decree, the reserved postal services include the following exclusive rights:

the conveyance of domestic and inbound international letters with a maximum individual weight of 50 grammes (100 grammes prior to 1 January 2006) at a rate of less than two and a half times (three times prior to 1 January 2006) the standard single rate (€0.39) for the lowest weight class of 20 grammes,
the exclusive right to place letterboxes intended for the public alongside or on public roads, and
the exclusive right to issue postal stamps and imprinted stamps bearing the likeness of the monarch and/or the word “ Nederland”.

These exclusive rights do not extend to courier services or services where the letters are delivered at the rate of more than two and a half times the standard single rate. The exclusive rights also do not extend to the conveyance of parcels, letters weighing in excess of 50 grammes and printed materials such as advertising, newspapers and magazines. In addition, the exclusive rights do not extend to the conveyance of letters by a business to its own customers.

Accounting other financial obligations

Our obligations on reporting include the establishment of an annual report on our performance of the mandatory postal services, providing, among other things, an overview of the ﬁnancial results related to the mandatory postal services. This report must be reviewed by an independent auditor appointed by OPTA.

Our ﬁnancial accounting obligations require us to maintain separate ﬁnancial accounts within our internal ﬁnancial administration for mandatory postal services. This separate accounting must be broken down into reserved postal services and other mandatory postal services and must be separated from the accounting of our other activities. Every year, we must submit to OPTA a declaration of an independent auditor, appointed by OPTA that our ﬁnancial accounting system complies with these obligations. This declaration has to be published by OPTA in the “Staatscourant”.

Underlying this accounting system and the ﬁnancial reports to OPTA is a system for allocating costs and revenues to the different types of services. This system complies with the accounting rules laid down in the EU Postal Directive and is approved by OPTA for the period ending 31 December 2006. The approval of OPTA was ofﬁcially published in the “Staatscourant” on 14 July 2004. The full text of the description of the allocation system is published in Dutch by OPTA on their website, www.opta.nl.

Value added tax on postal services

At present, we are not allowed to charge value added tax on postal items forming part of the mandatory postal services. The ﬂip side of this is that for mandatory postal services we can not deduct the VAT amounts paid on our purchases of services and goods related to the mandatory services. We are required to charge VAT on all services not included in the mandatory services, i.e. the services in competition with other operators. Competitors are required to charge VAT on those items as well. Therefore, there is a level playing ﬁeld for competitors and our company on these services.

Regulatory conditions for the provivision of mandatory postal services

Regarding mandatory postal services the General Postal Regulation Decree imposes various regulatory conditions on us with respect to service provision, tariffs, cost and revenue accounting, ﬁnancial administration and reporting. Other than the mandatory postal services, none of our postal services is subject to governmental control.

According to the Dutch Postal Act, article 2d, we are obliged to give our competitors entrance to our P.O. boxes. This service has to be delivered against reasonable, objectively justiﬁable and non-discriminatory conditions and remunerations. To date these conditions and remunerations are the negotiated results between parties.

With respect to service levels, the General Postal Regulations Decree requires us to provide a level of service that complies with modern standards, to provide nationwide services and to perform a delivery round every day, except for Sundays and public holidays. We are required to deliver not less than 95% of all domestic letters the day after the day of posting, not including Sundays and public holidays. We are required to maintain a network of service points (post ofﬁces and agents) for the access of the general public to the services. With respect to rates and conditions, we are required to set rates and associated conditions that are transparent, nondiscriminatory and uniform. However, we may grant volume discounts for items of correspondence and negotiate speciﬁc prices and conditions with high-volume users. We are required to submit proposed rate changes to OPTA, which has to evaluate whether the proposed changes are in accordance with the price cap system.

The price cap system measures tariff developments in two different baskets of services, a “total basket” and a “small users basket”. The total basket comprises domestic mandatory postal services provided to all customers. The small users basket comprises a selection of the total basket of domestic mandatory postal services that is representative for consumers and small business users.

The price cap system uses a weighing factor for each service in both baskets. The levels of the indices for both baskets are not to exceed the ofﬁcial national index of wages for employees in the market sector.

The price cap system was last evaluated in 2002. Since an earlier decision of the Ministry of Economic Affairs to freeze the tariffs controlled by the price cap system was declared void in June 2004, we have remained able to amend the individual rates for mandatory postal services, subject to the provisions of the tariff control system. However, in view of the wider importance of the adoption of an integral and balanced vision for the postal market as submitted to parliament, we announced our intention not to increase the price of a stamp for consumers from the level of €0.39 for the years 2004, 2005 and 2006. On 30 August 2006 we announced to amend the TNT Post rates on 1 January 2007. The rate for single-item domestic letters up to 20 grammes will be increased to €0.44. This will be the first rate increase for single-item mail in five and a half years. We intend not to increase the €0.44 rate again until 2010. The newly announced rates (12.1% average increase) remain within the inflation rate of 12.5% on aggregate since 2001. The rate increases fall within the maximum levels allowed by law, which has been confirmed by OPTA.