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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. | October | 99% | 22 | 17 | |
| Mail Express GmbH | January | 100% | 6 | 6 | |
| Turbo P.O.S.T. GmbH | April | 74% | 4 | 4 | |
| CBS City briefservice GmbH | April | 100% | 4 | 4 | |
| Ridas Sicherheits- und Handelsgesellschaft m.b.H. | November | 100% | 3 | 3 | |
| Other acquisitions (including remaining shares) | 16 | 8 | |||
| Total | 110 | 99 | |||
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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 |
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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 |
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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 |
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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 |
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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 | |
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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) |
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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 | 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 | |
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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 | |
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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 | |
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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) |
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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 | 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 |
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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 |
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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 |
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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 |
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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 |
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The location of employees at year end, including temporary employees on our payroll, is as follows:
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| Express | 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 | |||