1 Intangible assets: 2,119 million (2006: 1,785)
| Statement of changes in intangible assets | Goodwill | Software | Other intangibles | Total |
| Amortisation percentage | 10%- 35% | 0%- 35% | ||
| Historical cost | 2,139 | 335 | 103 | 2,577 |
| Accumulated amortisation and impairments | (513) | (207) | (19) | (739) |
| Balance at 31 December 2005 | 1,626 | 128 | 84 | 1,838 |
| Changes in 2006 | ||||
| Additions | 99 | 83 | 20 | 202 |
| Disposals | (9) | (1) | (10) | |
| (De)consolidation | 31 | 31 | ||
| Transfers to assets held for sale | (144) | (3) | (68) | (215) |
| Internal transfers/reclassifications | 11 | (11) | 0 | |
| Amortisation and impairments | (1) | (57) | (5) | (63) |
| Exchange rate differences | 2 | 2 | ||
| Total changes | (53) | 33 | (33) | (53) |
| Historical cost | 2,086 | 402 | 58 | 2,546 |
| Accumulated amortisation and impairments | (513) | (241) | (7) | (761) |
| Balance at 31 December 2006 | 1,573 | 161 | 51 | 1,785 |
| Changes in 2007 | ||||
| Additions | 256 | 72 | 25 | 353 |
| Disposals | (2) | (2) | ||
| (De)consolidation | 3 | 3 | 56 | 62 |
| Internal transfers/reclassifications | 22 | (22) | 0 | |
| Amortisation and impairments | (56) | (17) | (73) | |
| Exchange rate differences | (2) | (4) | (6) | |
| Total changes | 255 | 37 | 42 | 334 |
| Historical cost | 2,338 | 463 | 118 | 2,919 |
| Accumulated amortisation and impairments | (510) | (265) | (25) | (800) |
| Balance at 31 December 2007 | 1,828 | 198 | 93 | 2,119 |
|
||||
Goodwill is not amortised but is subject to an annual impairment review.
For impairment review purposes, all goodwill, including goodwill generated from the acquisition of TNT and GD Express Worldwide, is allocated to the applicable cash generating units (CGUs), based on the revenue as at the date of acquisition. Of the total goodwill balance of €1,828 million, TNT has allocated €1,248 million to the Express Europe CGU, €216 million to the combined European Mail Networks CGUs, €280 million to other Express CGUs, €49 million to Other networks CGU and €35 million to other Mail CGUs. The recoverable amount of a CGU is in principle determined based on value in use calculations by using the discounted cash flow model. These calculations use cash flow projections based on financial budgets approved by management covering a period of 9 years. TNT’s management has demonstrated that its cash flow projections have been reliable in the past. For the cash flow projections the key assumptions relate to revenues, operating income and capital expenditure. The value beyond the explicit forecast period is calculated assuming a constant cash flow as from the final year (0% growth). The recoverable value of the more recent acquisitions is the fair value less cost to sell, which is derived from recent market transactions. The addition in goodwill of €256 million in 2007 compared to 2006 is due to acquisitions, see note 28.
TNT determined the budgeted gross margin based on past performance and its expectations for market development. The weighted average growth rates used are consistent with the forecasts included in industry reports. The discount rates used in the CGUs valuations vary from 10% to 11% (pre-tax) to reflect specific risks relating to the relevant divisions.
The software balance includes internally generated software with a book value of €153 million at 31 December 2007 (2006: 121). Of the additions in software, €52 million related to self produced software and €20 million related to purchased software. Other intangible assets relate to customer lists of €76 million (2006: 35) and software under construction of €17 million (2006: 16).
The estimated amortisation expenses for software and other intangibles for the subsequent five years are 2008: €55 million, 2009: €59 million, 2010: €48 million, 2011: €34 million, 2012: €66 million and after 2012: €29 million. TNT does not conduct fundamental research and development; therefore, it does not incur fundamental research and development costs.
The intangible assets transferred to assets held for sale of €215 million in 2006 relate to the discontinued freight management business.
2 Property, plant and equipment: 1,785 million (2006: 1,678)
| Statement of changes in property, plant and equipment | Land and buildings | Plant and equipment | Aircraft | Other | Construction in progress | Total |
| Depreciation percentage | 0%-10% | 4%-33% | 4%-10% | 7%-25% | 0% | |
| Historical cost | 1,360 | 933 | 375 | 584 | 44 | 3,296 |
| Accumulated depreciation and impairments | (555) | (620) | (154) | (415) | (1,744) | |
| Balance at 31 December 2005 | 805 | 313 | 221 | 169 | 44 | 1,552 |
| Changes in 2006 | ||||||
| Capital expenditure | 43 | 75 | 111 | 70 | 118 | 417 |
| Acquisitions | 2 | 4 | 2 | 8 | ||
| Disposals | (12) | (6) | (3) | (6) | (27) | |
| Exchange rate differences | 3 | (1) | 2 | 4 | ||
| Depreciation and impairments | (59) | (92) | (25) | (79) | (255) | |
| Transfers to assets held for sale | (13) | (8) | (21) | |||
| Transfers and reclassifications | 54 | 49 | 14 | (117) | 0 | |
| Total changes | 18 | 29 | 85 | (7) | 1 | 126 |
| Historical cost | 1,385 | 877 | 477 | 500 | 45 | 3,284 |
| Accumulated depreciation and impairments | (562) | (535) | (171) | (338) | (1,606) | |
| Balance at 31 December 2006 | 823 | 342 | 306 | 162 | 45 | 1,678 |
| Changes in 2007 | ||||||
| Capital expenditure | 70 | 57 | 120 | 59 | 84 | 390 |
| Acquisitions | 1 | 40 | 1 | 2 | 44 | |
| Disposals | (8) | (3) | (3) | (14) | ||
| Exchange rate differences | (19) | (7) | (7) | (2) | (35) | |
| Depreciation and impairments | (62) | (105) | (32) | (77) | (276) | |
| Transfers to assets held for sale | (2) | (2) | ||||
| Transfers and reclassifications | 44 | 25 | 23 | (92) | 0 | |
| Total changes | 24 | 7 | 81 | 1 | (6) | 107 |
| Historical cost | 1,459 | 1,074 | 592 | 633 | 39 | 3,797 |
| Accumulated depreciation and impairments | (612) | (725) | (205) | (470) | (2,012) | |
| Balance at 31 December 2007 | 847 | 349 | 387 | 163 | 39 | 1,785 |
|
||||||
Aircraft and (spare) engines are depreciated on a straight-line basis over the shorter of the asset’s useful life and the lease term to estimated residual values of 20%. Depending on the type of aircraft, the depreciation term varies from 10 to 25 years. Spare parts are depreciated to their estimated residual value on a straight line basis over the remaining estimated useful life of the associated aircraft or engine type. All 47 aircrafts (2006: 44) are operated by the Express business.
Finance leases included in the property, plant and equipment balance as at 31 December 2007 are:
| Land and buildings | Plant and equipment | Aircraft | Other | Construction in progress | Total 2007 | Total 2006 | |
| Under finance lease | 22 | 18 | 212 | 5 | 257 | 155 | |
| Express | 18 | 16 | 212 | 5 | 251 | 145 | |
| 4 | 2 | 6 | 10 | ||||
|
|||||||
In May 2007 TNT entered into a 10 year finance lease agreement relating to the acquisition of an additional Boeing 747-400 ERF. The total capitalised value of the aircraft was €110 million based upon the present value of the minimum lease payments and guaranteed residual value included as part of the transaction. The lease requires semi-annual lease payments of a base amount of €4 million adjusted by an interest matrix that is linked to TNT’s credit rating at the time of each semi-annual payment. The lease agreement and related documents do not include an option for TNT to purchase the aircraft. In 2006 TNT entered into the first 10 year finance lease agreement pertaining to the acquisition of a Boeing 747-400 ERF with a total capitalised value of €110 million. See note 31 for the relating financial liabilities of the financial leases.
Included in land and buildings under financial lease are lease hold rights and ground rent. The book value of the lease hold rights and ground rent in Mail is €4 million (2006: 10), comprising a historical cost of €7 million (2006: 16), with accumulated depreciation of €3 million (2006: 6). The book value of the lease hold rights and ground rent in Express is €18 million (2006: 16), comprising a historical cost of €25 million (2006: 19) with accumulated depreciation of €7 million (2006: 3).
Lease hold and ground rents expiring within 1 year amount to €1 million (2006: 1), lease hold and ground rents between 1 and 5 years amount to €6 million (2006: 3), lease hold and ground rents between 5 and 20 years amount to €13 million (2006: 16) and lease hold and ground rents between 20 and 40 years amount to €1 million (2006:2), lease hold and ground rents more than 40 years amount to €1 million (2006: 0) and lease hold and ground rents contracts with indefinite terms amount to €0 million (2006: 4). Lease hold rights and ground rent for land and buildings are mainly in Belgium for €10 million (2006: 10), in the Netherlands for €4 million (2006: 10) and in France for €7 million (2006: 6).
TNT does not hold freehold office buildings for long term investments and for long term rental income purposes. The rental income is based upon incidental rental contracts with third parties for buildings which are temporarily not in use by TNT or based upon contracts which are supportive to the primary business activities of TNT.
Land and buildings of €44 million (2006: 34) are pledged as security to third parties in Express in Germany.
There are no material temporarily idle property, plant and equipment at 31 December 2007 (2006: 0). The historical cost of fully depreciated property, plant and equipment that is still in use is €578 million (2006: 353) of which €240 million (2006: 175) is related to plant and equipment, €158 million (2006: 49) is related to land and buildings and €180 million is related to other (2006: 129).
In 2007, TNT has been entitled to a grant of €7 million following the fulfilment of the conditions of the grant, which related to the building of a depot in the Express hub in Liege. The grant received has been deducted from the historical value of the asset resulting in lower depreciation charges in 2007 and beyond.
3 Financial fixed assets: 325 million (2006: 314)
| Statement of changes in financial fixed assets | Prepayments and accrued income | |||||
| Investments in associates | Other loans receivable | Deferred tax assets | Financial fixed assets at fair value | Other prepayments and accrued income | Total | |
| Balance at 31 December 2005 | 47 | 13 | 188 | 1 | 24 | 273 |
| Changes in 2006 | ||||||
| Acquisitions/additions | 20 | 1 | 51 | 16 | 1 | 89 |
| Disposals/decreases | (26) | (26) | ||||
| Transfers to assets held for sale | (3) | (3) | (1) | (7) | ||
| (De)consolidation | 2 | 1 | 3 | |||
| Withdrawals/repayments | (7) | (4) | (11) | |||
| Exchange rate differences | (1) | (1) | ||||
| Other changes | (6) | (6) | ||||
| Total changes | 11 | (6) | 23 | 16 | (3) | 41 |
| Balance at 31 December 2006 | 58 | 7 | 211 | 17 | 21 | 314 |
| Changes in 2007 | ||||||
| Acquisitions/additions | 31 | 82 | 3 | 116 | ||
| Disposals/decreases | (7) | (88) | (95) | |||
| Transfers to assets held for sale | 0 | |||||
| (De)consolidation | 1 | 1 | 2 | |||
| Withdrawals/repayments | (2) | (13) | (4) | (19) | ||
| Exchange rate differences | (3) | (3) | ||||
| Other changes | 1 | 9 | 10 | |||
| Total changes | 25 | (2) | (8) | (4) | 0 | 11 |
| Balance at 31 December 2007 | 83 | 5 | 203 | 13 | 21 | 325 |
|
||||||
Investments in associates
The goodwill balance included in investments in associates at 31 December 2007 is €3 million (2006: 0). The result from investments in associates at 31 December 2007 amounts to €1 million (2006: -6) and is included in ‘Other changes’. TNT’s investment in Logispring Investment Fund Holding B.V. is the most significant investment in an associate. TNT accounts for this investment using the equity method. Key information regarding this investment (on a stand alone basis) is as follows and includes balances at 100%:
| Year ended at 31 December | 2007 | 2006 |
| Non-current assets | 70 | 52 |
| Current assets | 0 | 0 |
| Equity | 70 | 52 |
| Non-current liabilities | 0 | 0 |
| Current liabilities | 0 | 0 |
| Net sales | 0 | 0 |
| Operating income | 0 | 0 |
| Profit attributable to the shareholders | (3) | (5) |
| Net cash from operating activities | 0 | (0) |
| Net cash used in investing activities | (20) | (16) |
| Net cash used in financing activities | 20 | 16 |
| Change in cash from continuing operations | 0 | 0 |
|
||
Deferred tax assets
Deferred tax assets are further explained in note 23.
Financial assets at fair value
Financial assets at fair value mainly include TNT’s 3.5% equity stake in CEVA Investments Ltd. (formerly known as Louis Topco Limited), for an amount of €11 million (2006: 15.5), which TNT obtained as part of the sale of its logistics division as at 4 November 2006.
During Q1 of 2007 TNT received €13 million of dividends relating to this investment. In addition TNT re-measured the fair value to €11 million based on an offer received to sell its stake. The fair value through profit and loss amounted to €9 million and is recorded in interest income and expenses, see note 22. As these are non-listed securities, day-to-day market prices of the underlying share are not available.
As per 31 December 2006 the financial assets at fair value also included the fair value of a US$139 million interest rate swap of €1 million (2007: -2). For further disclosure on this swap, see note 31.
4 Inventory: 30 million (2006: 29)
| At 31 December | 2007 | 2006 |
| Raw materials and supplies | 10 | 9 |
| Finished goods | 20 | 20 |
| Total | 30 | 29 |
|
||
Total inventory of €30 million (2006: 29) is valued at historical cost for an amount of €35 million (2006: 35) and is stated net of provisions for obsolete items amounting to €5 million (2006: 6). There are inventories carried at net realisable value for an amount of €1 million (2006: 0) and no inventories are pledged as security for liabilities as at 31 December 2007. In 2007,
no material write offs relating to inventories occurred. The balance of inventories that is expected to be recovered after 12 months is €1 million (2006: 1).
5 Accounts receivable: 1,656 million (2006: 1,561)
| At 31 December | 2007 | 2006 |
| Trade accounts receivable - total | 1,514 | 1,380 |
| Provision for impairment | (62) | (61) |
| Trade accounts receivable - net | 1,452 | 1,319 |
| Vat receivable | 34 | 27 |
| Other accounts receivable | 170 | 215 |
| Total | 1,656 | 1,561 |
|
||
The fair value of the accounts receivable approximates its carrying value. Other accounts receivables mainly include receivables from insurance companies, deposits and various other items. The balance of accounts receivable that is expected to be recovered after 12 months is €2 million (2006: 1). The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivables mentioned above. TNT does not hold collaterals as security for the outstanding balances. For the non-trade accounts receivables no provision for impairment is required. The concentration of the accounts receivable per customer is limited. The concentration of our accounts receivable portfolio over the different regios can be summarised as follows: the Netherlands €256 million (2006: 255), Rest of Europe €965 million (2006: 872), Asia €118 million (2006: 98), and America’s and rest of the world €113 million (2006: 94), see note 35.
As of 31 December 2007, the total trade accounts receivable amounted to €1,514 million of which €828 million was past due date but not individually impaired (2006: 561). The total provision for impairment amounts to €62 million (2006: 61) of which €35 million (2006: 37) relates to trade accounts receivable that were individually impaired for the notional amount. The remainder of the provision relates to a collective loss component established for groups of similar trade accounts receivable balances in respect to losses that have been incurred but not yet identified as such for trade accounts receivable. This collective loss component is largely based on the ageing of the trade receivables and reviewed periodically.
The ageing analysis of the trade accounts receivable past due but not individually impaired is presented below:
| At 31 December | 2007 | 2006 |
| Up to 3 months | 748 | 509 |
| 3-6 months | 45 | 31 |
| Over 6 months | 35 | 21 |
| Total | 828 | 561 |
|
||
The movements in the provision for impairment of trade accounts receivables are as follows:
| At 31 December | 2007 | 2006 |
| Balance at 1 January | 61 | 58 |
| Provided for during financial year | 18 | 19 |
| Receivables written off during year as uncollectable | (13) | (13) |
| Unused amounts reversed | (4) | (3) |
| Balance at 31 December | 62 | 61 |
|
||
6 Prepayments and accrued income: 236 million (2006: 227)
Prepayments and accrued income include amounts paid in advance to cover costs that will be charged against income in future years and net revenues not yet invoiced. At 31 December 2007, prepayments amounted to €79 million (2006: 70). The balance of prepayments and accrued income that is expected to be recovered after 12 months is €4 million (2006: 0).
Prepayments and accrued income also include outstanding short term foreign exchange forward contracts for an amount of €4 million (2006: 3) and forward interest rate swaps for an amount of €1 million (2006: 0). The fair value of these financial instruments has been calculated at the relevant market (forward) rates at 31 December 2007. The notional principal amount of the outstanding foreign exchange forward contracts is €461 million at 31 December 2007 (2006: 282). The notional principal amount of the forward swaps is €400 million at 31 December 2007 (2006: 600). See note 31.
7 Cash and cash equivalents: 295 million (2006: 297)
Cash and cash equivalents comprise cash at bank and in hand of €169 million (2006: 234) and short term bank deposits of €126 million (2006: 63). The effective interest rate during 2007 on short term bank deposits was 4% (2006: 3%) and the average outstanding amount was €77 million with an average maturity of 1.6 days. Included in cash and cash equivalents is €41 million (2006: 74) of restricted cash. The fair value of cash and cash equivalents approximates the carrying value.
8 Assets held for sale: 10 million (2006: 409) Liabilities related to assets classified as held for sale: 0 million (2006: 146)
The assets held for sale as at 31 December 2007 amount to €10 million and relate to buildings held for sale.
The assets and liabilities as at 31 December 2006 related to the decision taken to divest the freight management business following the strategy to focus on TNT’s core competency. On 16 November 2006, TNT signed a Sale and Purchase Agreement to sell its freight management business to the French logistics service provider Geodis SA. On 5 February 2007, the sale was completed. The total transaction value was €483 million on a cash and debt free basis. Taking into account various deal related costs and deductions, the net proceeds amounted to €468 million resulting in a book gain of €206 million.
The income from discontinued operations in 2007 amounting to €206 million represents the profit on the sale of TNT’s discontinued freight management operations. The operating result of the discontinued freight management operations for the period 1 January 2007 up to and including 4 February 2007 amounted to zero.
The loss from discontinued operations in 2006 amounting to €157 million largely relates to the discontinued logistics operations. The sale of the discontinued logistics operations was completed on 4 November 2006.
9 Equity: 1,951 million (2006: 2,008)
Equity consists of equity attributable to the equity holders of the parent of €1,931 million (2006: 1,983) and minority interest of €20 million (2006: 25). Equity attributable to the holders of the parent consists of the following items:
Issued Share Capital
Issued share capital amounted to €182 million at 31 December 2007 (2006: 203). The number of authorised, issued and outstanding shares by class of share is as follows:
| At 31 December | 2007 | 2006 |
| Authorised | 1,600,000,000 | 1,800,000,000 |
| Ordinary shares | 800,000,000 | 900,000,000 |
| Preference B | 800,000,000 | 899,999,999 |
| Special share | 0 | 1 |
| Issued and outstanding | 379,224,255 | 422,767,601 |
| Ordinary shares | 379,224,255 | 422,767,600 |
| of which held by the company to cover share plans | 1,716,060 | 2,884,441 |
| of which held by the company for cancellation | 6,977,275 | 27,640,543 |
| Preference B | 0 | 0 |
| Special share | 0 | 1 |
| of which held by the company for cancellation | 0 | 1 |
Authorised share capital
By deed of 27 April 2007 the articles of association were amended. As of that date the company’s authorised share capital amounts to €768 million, divided into 800,000,000 ordinary shares and 800,000,000 preference shares B of €0.48 nominal value each. Prior to the amendment, the authorised share capital amounted to €864 million and was divided into 900,000,000 ordinary shares, 1 special share and 899,999,999 preference shares B of €0.48 nominal value each.
Form of shares
The ordinary shares are in bearer or in registered form. Ordinary shares in bearer form are represented by a global note held by the Dutch clearing system Euroclear Netherlands (formerly known as NECIGEF) and are transferable through Euroclear Netherlands’ book entry system. ADRs represent ordinary shares in bearer form represented by the note held by Euroclear Netherlands. Ordinary shares in registered form are transferred by means of a deed of transfer and TNT’s written acknowledgement of the transfer. TNT does not have share certificates for ordinary shares represented by the global note. The preference shares B are in registered form.
Repurchase of shares to cover share plans
In 2007, the company purchased no ordinary shares (2006: 2.700.000) to cover its obligations under the existing management option plans and share grants. At 31 December 2007 the total number of shares held for this purpose was 1,716,060 (2006: 2,884,441). TNT shares held by the company are not entitled to receive dividends nor have voting rights.
Repurchase of shares / reduction of the issued share capital by cancellation of shares
Under the €1,000 million share buy-back programme announced on 6 November 2006, TNT purchased 27,640,543 ordinary shares in 2006 and 3,307,164 ordinary shares in January 2007. On 20 April 2007 the annual general meeting of shareholders resolved to cancel the total number of 30,947,707 ordinary shares purchased under this programme. The cancellation of these shares became effective as of 5 July 2007.
The company announced a further buy-back programme of €400 million on 26 February 2007. In total 12,595,639 ordinary shares were repurchased under this programme during 2007. The annual general meeting of shareholders held on 20 April 2007 had also resolved to cancel the shares purchased under this programme, and the cancellation of these shares became effective on 29 November 2007.
In 2007, the total number of issued and outstanding ordinary shares decreased by 43,543,346. At a nominal value of €0.48 per share, the cancellation equals an amount of €20.9 million.
On 30 July 2007 TNT announced a new share repurchase programme of up to €500 million. A first tranche of €200 million was commenced on 9 November 2007. As a result of these repurchases, the company held 6,977,275 ordinary shares for cancellation at 31 December 2007 (2006: 27,640,543).
Special share
On 17 November 2006, the State of the Netherlands transferred its special share in the company for free to TNT. On 20 April 2007 the annual general meeting of shareholders resolved to convert the special share into an ordinary share as part of an amendment to the articles of association of TNT. As a result the special share ceased to exist on 27 April 2007, the date on which the amendment to the articles became effective.
Preference shares
Stichting Bescherming TNT (Foundation Protection TNT or the Foundation) was formed to care for TNT’s interests, the enterprises connected with TNT and all interested parties, such as shareholders and employees, by, among other things, preventing as much as possible influences which would threaten TNT’s continuity, independence and identity contrary to such interests. The Foundation is an independent legal entity and is not owned or controlled by any other legal person.
TNT’s articles of association provide for protective preference shares B that can be issued to the Foundation to serve these interests. There are currently no preference shares B issued, although the Foundation has a call option to acquire a number of preference shares B not exceeding the total issued amount of shares minus one and minus any shares already issued to the Foundation.
TNT and the Foundation have entered into the call option agreement to prevent, delay or complicate unsolicited influence of shareholders, including an unsolicited take-over or concentration of power. The issue of preference shares B enables TNT to consider its position in the then-existing circumstances. The preference shares B will be outstanding no longer than strictly necessary. Once the reason for the placing of the preference shares B no longer exists, TNT shall propose to the general meeting of shareholders to cancel the preference shares B entirely as a class.
At the annual general meeting of shareholders held on 20 April 2007, the shareholders rejected the proposal to extend the then-current authority of the Board of Management to issue preference shares B for another period of eighteen months. This authority enabled the Board of Management to initiate a placement of preference shares B with the Foundation following the put option agreement. As from 20 October 2007 the Board of Management was no longer entitled to initiate such placement. After careful consideration, it was agreed by TNT and the Foundation to terminate the put option agreement as of 15 February 2008.
TNT has granted to the Foundation the right to file an application for an inquiry into the policy and conduct of business of TNT with the Enterprise Chamber of the Amsterdam Court of Appeal (Ondernemingskamer). TNT believes that this may be a useful option in the period before the issuance of preference shares B, without causing a dilution of the rights of other shareholders at that stage.
Additional paid in capital
Additional paid in capital of €982 million (2006: 1,245) is exempt for Dutch tax purposes.
Translation reserve
In 2007 the cumulative translation reserve decreased from -€5 million in 2006 to -€82 million in 2007. An amount of -€81 million (2006: -1) is the movement in exchange differences on converting foreign subsidiaries of TNT N.V. into euros. These differences are charged or credited to the translation reserve, net of taxation. In 2007, an amount of €4 million was released from equity and charged to income related to the divestment of the freight management business. In 2006 the portion of TNT’s translation reserve that related to the divested logistics business was released from equity and charged to income.
The translation reserve is a legal reserve, which cannot be distributed to the equity holders of the company.
Hedge reserves
Movements on cash flow hedges amounted to -€1 million (2006:-9) resulting from the fair value movement on the €1,000 million forward starting swaps and the US$441 million of forward starting interest swaps, net of taxes. The net cash payments relating to the unwinding of these swaps will be recycled from equity to the income statement based on the duration of the underlying hedged items. During 2007, €600 million and $154 million of forward starting swaps were unwound with a relating recycling of the recorded fair value adjustment to the income statement. In 2007, €1 million of fair value adjustment has been recycled to the income statement due to ineffective hedging. For further information on the interest rate swaps, see note 31.
The hedge reserve is a legal reserve, which cannot be distributed to the equity holders of the company.
Other Reserves
The other reserves are nil (2006: 0).
The appropriation of net income from 2006 which is added to the other reserves in 2007 amounts to €378 million (2006: 386).
In 2007, TNT increased its other reserves representing the fair value of share based transactions to an amount of €14 million (2006: 13).
The “other” movement of €31 million (2006: 54) includes the proceeds obtained from the share grants of 2007 and 2006 and exercise rights of option plans of prior years.
Retained earnings
The profit for 2007 has been calculated as the 2007 net income of TNT N.V. and all its subsidiaries. The 2007 unappropriated component is €871 million (2006: 561), containing the net profit of €986 million (2006: 670) and the paid interim dividend 2007 of €115 million (2006: 109). The Board of Management has determined to add €670 million (2006: 378) to other reserves and to put €201 million (2006: 183) as final dividend at the disposal of the general meeting of shareholders.
10 Pension assets: 594 million (2006: 500) and provisions for pension liabilities: 437 million (2006: 523)
TNT operates a number of pension plans around the world. Most of TNT’s non-Dutch pension plans are defined contribution plans. For TNT’s non-Dutch employees, the company also operates other post-employment benefit plans and defined benefit plans, for which the liabilities are separately covered by private insurers and foreign pension funds.
TNT’s main Dutch company pension plan (main plan), which is externally funded in “Stichting Pensioenfonds TNT” (main fund), covers the employees who are subject to TNT’s collective labour agreement and staff with a personal labour agreement who joined the company as from 2007 in the Netherlands. The majority of all TNT’s Dutch employees are subject to the collective labour agreement. The plan covers around 93,000 participants including approximately 13,000 pensioners and around 36,000 former employees. By Dutch law the plan is carried out by a separate legal entity and is managed by an independent board that falls under the supervision of “De Nederlandsche Bank” (DNB).
The transitional pension plan consist of the early retirement scheme and additional arrangements which have been agreed between the company and the employees following the revised fiscal regulations applying to Dutch pension plans in 2006.
In the main plan only the employer contributes to the fund. The level of contribution is based upon actuarial recommendations. The total contribution to the main pension fund amounted to €91 million (2006: 87) and is estimated to be €90 million in 2008. The contribution for the transitional plans amounted to €103 million (2006: 107) and is estimated at €97 million for 2008.
The main fund runs an actively managed investment portfolio. The main fund uses asset and liability management studies that generate future scenarios to determine its optimal asset mix. During 2007, the dynamic weight of equity investments decreased to 42.1%, the dynamic weight of fixed interest investments increased to 38.1% and the weight of real estate and alternative investments increased to 19.8%. The plan assets may from time to time include investment in TNT’s own financial instruments through indirect holdings by mutual funds. However, these indirect holdings are an immaterial share of the total plan assets. The plan assets do not include property occupied by or other assets used by TNT.
Derivatives of equity and debt instruments (e.g. swaps) may be used to realise changes in investment portfolio, to hedge against unfavourable market developments or to adjust the matching of assets and liabilities.
The pension benefit obligation of TNT’s main plan and transitional plan covers approximately 94.9% of the group pension obligation for post-employment benefits and the plan assets cover approximately 93.1% of the group pension plan assets. The return on the group plan assets was 2.4% (2006: 8.5%).
| Actual mix | Strategic mix | |||
| At 31 December | 2007 | 2006 | 20087 | 2007 |
| Equities | 42.1% | 48.4% | 45% | 45% |
| Fixed interest and Inflation linked Bonds | 38.1% | 37.9% | 40% | 40% |
| Real estate and alternative investment | 19.8% | 13.2% | 15% | 15% |
| Cash | 0.5% | |||
| Total | 100.0% | 100.0% | 100% | 100% |
| Historical returns | 2007 | Average since plan inception |
| Equities | 4.8% | 8.8% |
| Fixed interest and Inflation linked Bonds | 1.2% | 7.0% |
| Real estate and alternative investment | 12.8% | 7.8% |
| Swaps 1 | -2.1% | -0.6% |
| Total | 2.4% | 7.9% |
|
||
Pension costs recognised in the statements of income
Inherent to the valuation of TNT’s pension and the determination of its pension cost are key assumptions which include: employee turnover, mortality rates and retirement ages, discount rates, expected long term returns on plan assets, pension increases and future wage increases, which are usually updated on an annual basis at the beginning of each financial year. Actual circumstances may vary from these assumptions giving rise to a different pension liability, which would be reflected as an additional profit or expense in TNT’s statement of income, in the next year.
In 2007, TNT’s expense for post-employment benefit plans was €45 million (2006: 120). Total cash contributions for pensions in 2007 amounted to €212 million (2006: 243) and are expected to amount to approximately €202 million in 2008.
| Statement of changes in net pension asset/(liability) | Balance at 1 January 2007 | Employer pension expense | Contributions/ Other | Balance at 31 December 2007 |
| Provision for pension liabilities | 36 | (41) | 212 | 207 |
| of which main pension plan in the Netherlands | 452 | (7) | 91 | 536 |
| of which transitional plan in the Netherlands | (459) | (31) | 103 | (387) |
| of which other pension plan | 43 | (3) | 18 | 58 |
| Other post-employment benefit plans | (59) | (4) | 13 | (50) |
| Total post-employment benefit plans | (23) | (45) | 225 | 157 |
|
||||
As of 2007, the company has revised the presentation of the pension positions of TNT’s various defined benefit schemes which more fairly represent TNT’s balance sheet position. On the balance sheet, the pension assets and pension liabilities of the various schemes have been presented separately, resulting in a pension asset of €594 million (2006: 500) and a pension liability of €437 million (2006: 523). Consequently, the company has adjusted its comparative numbers in the balance sheet. This revised presentation has no impact on TNT’s equity or net profit.
The funded status of TNT’s pension plans at 31 December 2007 and 2006 and the employer pension expense for 2007 and 2006 is presented in the table below.
| Pension disclosures | 2007 | 2006 |
| CHANGE IN BENEFIT OBLIGATION | ||
| Benefit obligation at beginning of year | (5,373) | (5,398) |
| Transfer to discontinued businesses | 3 | |
| Service costs | (139) | (171) |
| Interest costs | (255) | (237) |
| Other movements | (3) | |
| Amendments/foreign currency effects | 2 | 4 |
| Curtailments/settlements | 1 | 12 |
| Actuarial (loss)/gain | 762 | 221 |
| Benefits paid | 197 | 196 |
| Benefit obligation at end of year | (4,805) | (5,373) |
| CHANGE IN PLAN ASSETS | ||
| Fair value of plan assets at beginning of year | 4,668 | 4,216 |
| Actual return on plan assets | 104 | 405 |
| Contributions | 212 | 243 |
| Benefits paid | (197) | (196) |
| Fair value of plan assets at end of year | 4,787 | 4,668 |
| FUNDED STATUS AS PER 31 DECEMBER | ||
| Funded status | (18) | (705) |
| Unrecognised net actuarial loss | 217 | 732 |
| Unrecognised prior service costs | 8 | 9 |
| Pension liabilities | 207 | 36 |
| Other employee benefit plans | (50) | (59) |
| Net pension asset/(liability) | 157 | (23) |
| COMPONENTS OF EMPLOYER PENSION EXPENSE | ||
| Service costs | (139) | (171) |
| Interest costs | (255) | (237) |
| Expected return on plan assets | 373 | 346 |
| Amortisation of actuarial loss | (20) | (58) |
| Curtailment gain | 1 | 11 |
| Other costs | (1) | (2) |
| Employer pension expense | (41) | (111) |
| Other post employment benefit plan expenses | (4) | (9) |
| Total post employment benefit expenses | (45) | (120) |
| WEIGHTED AVERAGE ASSUMPTIONS AS AT 31 DECEMBER | ||
| Discount rate | 5.7% | 4.7% |
| Expected return on plan assets | 7.9% | 7.9% |
| Rate of compensation increase | 2.0% | 2.0% |
| Rate of benefit increase | 2.0% | 2.0% |
|
TNT’s pension costs are affected by the discount rate used to measure pension obligations and the expected long-term rate of return on plan assets. Management reviews these and other assumptions every year. Measurement date for TNT’s post-employment benefits is 31 December. Changes in assumptions may occur as a result of economic and market conditions. The impact of changes on the annual pension expense can be found in the table ‘change in assumptions’ hereafter. If actual results differ from those assumed, this will generate actuarial gains or losses. These are amortised over the remaining average service lives of employees if they exceed the 10%-corridor.
The discount rate is based on the long-term yield on high quality corporate bonds, including a correction for the duration-mismatch based on the yield curve used by Dutch pension funds as published by DNB. The duration of the available corporate bonds index (AA 10+) is around 12 years. The duration of the pension liabilities is around 18 years. The yield on these bonds is corrected for this duration-mismatch.
Management considers various factors to determine the expected return on plan assets. The expected return is based on the current long-term rates of return on bonds and applies to these rates a suitable risk premium for the different asset components. The premium is based on the plan’s asset mix, historical market returns and current market expectation.
Returns are linked to the strategic objective of the Stichting Pensioenfonds TNT, as annually reported in the Asset Liability Management study of this main fund. This main fund controls 93.1% of the group plan assets. Ultimately the long-term objective is to protect the assets from erosion of purchase power, and to provide long-term growth of capital without excessive exposure to risk. The duration of the plan liabilities determines the investment strategy. The assets are managed by external investment managers. Active management strategies are utilised in an effort to realize investment returns in excess of market indices. This programme provides a reasonable expectation that returns can be achieved that exceed indexed funds. The main fund establishes the investment policy and strategy, including the selection of investment managers, setting long term strategic targets and monitoring. The strategic asset mix is a target and not a limitation. The fund may approve components of the asset mix above or below targeted range. The fund may decide to rebalance or change the asset mix periodically.
Assumptions regarding future mortality are based on advice, published statistics and experience per country. The majority of the defined benefit obligation relates to participants in the Netherlands. In the Netherlands, the average life expectancy of men after retiring at the age of 65 is 18.0 years (2006: 16.9). The equivalent expectancy for women is 21.0 years (2006: 21.3). The applied mortality rates derived from the mortality table “GBM/GBV 2006-2011 with age corrections -1/-1 (male/female).”
Funded status defined benefit plans
The table below reconciles the opening and closing balances of the present value of the defined benefit obligation and the fair value of plan assets for the other defined benefit pension plans. Included in the provision for pension liabilities are other employee benefits for the unfunded defined benefit Trattamento di Fine Rapporto (“TFR”) in Italy of €50 million (2006: 59).
The amounts recognised in the balance sheet are determined as follows:
| At 31 December | 2007 | 2006 |
| Present value of funded benefit obligations | (4,175) | (4,551) |
| Fair value of plan assets | 4,787 | 4,668 |
| (Un)Funded status | 612 | 117 |
| Present value of unfunded benefit obligations | (630) | (822) |
| Unrecognised liability | 225 | 741 |
| Other employee benefit plans | (50) | (59) |
| Net pension asset/(liability) | 157 | (23) |
| of which included in pension assets | 594 | 500 |
| of which included in provisions for pension liabilities | (437) | (523) |
|
The table below shows the sensitivity of the employer pension expense to deviations in assumptions.
| Change in assumptions | %-change in assumptions | Change in employer pension expense |
| Employer pension expense | (41) | |
| Discount rate | + 0.5% | 56 |
| Expected return on plan assets | + 0.5% | 23 |
| Rate of compensation increase | + 0.5% | (88) |
| Rate of benefit increase | + 0.5% | (83) |
| Employer pension expense | (41) | |
| Discount rate | (0.5)% | (86) |
| Expected return on plan assets | (0.5)% | (23) |
| Rate of compensation increase | (0.5)% | 56 |
| Rate of benefit increase | (0.5)% | 53 |
|
The table below shows the defined benefit obligation, fair value of plan assets and experience adjustments thereon for the current annual period and previous four annual periods. The experience adjustment is the difference between the expected and actual position at the end of the year. The experience adjustment of the defined benefit obligation can not be reliably determined for the period 2003-2005.
| At 31 December | 2007 | 2006 | 2005 | 2004 | 2003 |
| Funded and Unfunded Defined benefit obligation | (4,805) | (5,373) | (5,398) | (4,887) | (3,727) |
| Experience adjustment gain/(loss) | 0.9% | -0.4% | |||
| Fair value of plan assets | 4,787 | 4,668 | 4,216 | 3,693 | 3,277 |
| Experience adjustment gain/(loss) | -5.4% | 1.2% | 4.7% | 0.4% | 2.3% |
| (Un)Funded status | (18) | (705) | (1,182) | (1,194) | (450) |
|
|||||
The table below shows the expected future benefits per year for pension funds related to TNT’s plans for the coming five years. The benefits include all expected payments by the fund or TNT to the pensioners, including the Dutch transitional plan.
| Year | Expected benefits as per 31 December 2007 |
| 2008 | 191 |
| 2009 | 205 |
| 2010 | 222 |
| 2011 | 232 |
| 2012 | 237 |
|
|
Amounts expensed in the consolidated statements of income related to defined contribution plans were €36 million (2006: 35).
11 Other employee benefits: 55 million (2006: 57)
| Other employee benefit obligations | |
| Balance at 31 December 2006 | 57 |
| Exchange differences | |
| Additions | 10 |
| Withdrawals | (7) |
| Other | |
| Total changes | 3 |
| Balance at 31 December 2007 | 60 |
| of which included in other employee benefit obligations | 55 |
| of which included in short term provisions | 5 |
|
|
Other employee benefits consist of provisions related to jubilee payments for €34 million (2006: 32), long-service benefits for €13 million (2006: 14), long term disability benefits for €1 million (2006: 2) and other employee benefits for €12 million (2006: 9).
Short term employee benefits, such as salaries, profit sharing and bonuses are discussed in note 19.
12 Other provisions: 145 million (2006: 106)
| Statement of changes in other provisions | Restructuring | Claims and indemnities | Other | Total |
| Balance at 31 December 2006 | 45 | 116 | 32 | 193 |
| of which included in other provisions (non-current) | 26 | 58 | 22 | 106 |
| of which included in short term provisions | 19 | 58 | 10 | 87 |