24 Net cash from operating activities (continuing operations): 643 million (2006: 857)
The net cash from operating activities decreased by €214 million from €857 million in 2006 to €643 million in 2007. The non-cash transactions in the cash flow statements relate to depreciation, amortisation and impairment charges, share based payment expenses, result from investments in associates, foreign exchange gains and losses, investments in property, plant and equipment financed via financial leases, book result on sale of property, plant and equipment and changes in provisions.
Cash generated from operations
The cash generated from operations decreased from €1,338 million in 2006 to €1,313 million in 2007. In 2007 profit before income taxes contributed €1,099 million and €1,448 million if adjusted for the non-cash impact of depreciation, amortisation and impairments. This is €93 million lower compared to 2006 (2006: 1,541).
The changes in pension liabilities of €179 million compared to 2006 (2006: 124) reflects the total non-cash pension charge for the defined benefit pension schemes of €45 million (2006: 120) and TNT’s total cash contributions to various pension plans of €212 million (2006: 243) reflecting the increased solvency of TNT’s pension fund and a reduced number of eligible employees.
In 2007, the net working capital increased by €77 million compared 2006. The increase is mainly a result of organic growth and acquisitions within the Express and EMN business.
Interest paid
The total cash out flow for interest paid in 2007 is €178 million (2006: 199). In 2007 interest paid mainly includes interest on TNT’s long term borrowings of €67 million (including financial leases of €12 million and long term interest derivatives of €6 million) (2006: 53), interest payments of €79 million relating to short term debt (of which €58 million (2006: 89) is a gross up due to cash pools which is offset in the interest received), realised interest on foreign currency hedges of €17 million (2006: 17), and interest paid on taxes of €11 million (2006: 7).
Taxes paid
The cash outflow of the total tax payments increased by €210 million from €282 million in 2006 to €492 million in 2007, of which €166 million related to prior years.
25 Net cash used in investing activities (continuing operations): -8 million (2006: 1,068)
Acquisition of group companies (net of cash)
In 2007, the total payments net of cash for acquisitions of group companies amounted to €287 million (2006: 89). The most significant acquisitions in 2007 related to the Express division (€264 million), among others, the acquisitions of Mercúrio Expresso SA (€147) and Hoau (€114).
Mail acquired for a total amount of €23 million mainly related to Regio-ES GmbH and Mail Express Gmbh, see note 28.
Investments in associates
The cash paid for investments in associated companies of €29 million primarily related to additional funding for Logispring Investment Fund Holding B.V.
Disposal of group companies and joint ventures
During 2007, the freight management business has been sold resulting in cash proceeds of €486 million.
Capital expenditure on intangible assets and property, plant and equipment
In 2007, capital expenditures on property, plant and equipment amounted to €272 million (2006: 277). This is excluding the purchase of a Boeing 747 of €110 million which is funded by means of a finance lease. Of this amount, €197 million (2006: 198) related to Express, €73 million (2006: 74) to Mail and €2 million (2006: 5) to other. The capital expenditures on intangible assets of €97 million (2006: 103) mostly related to software. In 2007, capital expenditures were funded primarily by cash generated from operations.
Proceeds from sale of property, plant and equipment and intangible assets
Proceeds from the sale of property, plant and equipment in 2007 totalled €85 million (2006: 65), which mainly related to the sale of several buildings from TNT Real Estate B.V. and TNT Real Estate Development B.V. (totalling €57 million) and buildings and equipment from the joint venture Postkantoren B.V. (€5 million) in the Mail segment and equipment in the Express operations (€19 million).
Interest received
In 2007 interest received amounted to €85 million (2006: 111). In 2007 interest received mainly includes interest relating to short term deposits of €69 million (2006: 101) of which €58 million (2006: 89) is a gross up due to cash pools which is offset in the interest paid), realised interest on foreign currency hedges of €5 million (2006: 6) and interest received on taxes of €5 million (2006: 0).
26 Net cash used in financing activities (continuing operations): -635 million (2006: -2,152)
Repurchases of shares
Under TNT’s share buy-back programme announced on 6 November 2006 TNT purchased 3.3 million of its ordinary shares in 2007 for an amount of €113 million. In addition, €6 million has been paid in 2007 for ordinary shares purchased in 2006. Under TNT’s share buy-back programme announced on 20 April 2007 the company purchased 12.6 million of its ordinary shares in 2007 for an amount of €400 million. Under TNT’s share buy-back programme announced on 30 July 2007 the company purchased 7.0 million ordinary shares in 2007 for an amount of €194 million, of which €3 million relates to the purchase during the last days of 2007 and is to be paid in 2008.
In addition to the share buy-back programmes the company purchased no ordinary shares in 2007 to cover TNT’s obligations under the existing management option plans and share grants.
TNT received cash payments of €29 million (2006: 52) for the exercise of employee stock options in 2007. This decrease is due to the accelerated vesting of options of the Logistics participants in 2006.
Proceeds from and Repayments to long term borrowings
The total proceeds on long term borrowings mainly relate to TNT’s new issued 5.375% Bond 2017 with proceeds of €645 million and the new acquired long term bank loans of €14 million. The Bond has a nominal value of €650 million and the cash receipt of €645 million is due to the issuance of the Bond under par and related fees. The total repayments of €20 million (2006: 53) mainly relates to repayments of long term bank loans. The majority of these loans have been acquired through the Mercúrio acquisition.
Proceeds from and Repayments to short term borrowings
The total proceeds on short term borrowings relate to new acquired short term bank debt of €99 million (2006: 328). The total repayments mainly relate to repayments on TNT’s commercial paper programme of €287 million and to repayments of short term bank debt of €45 million (2006: 161).
Repayments to finance leases
The total repayments relate to redemptions on the two Boeing 747’s of €10 million (2006: 4) and to redemptions on other lease contracts of €9 million (2006: 6).
Dividends paid
A final cash dividend over 2006, amounting to €183 million or €0.47 per ordinary share and a cash interim dividend for 2007 of €115 million or €0.30 per ordinary share were paid in 2007.
Financing related to TNT’s discontinued operations
In 2007 the net cash flow used in financing TNT’s discontinued freight management business amounted to €18 million (2006: 276).
27 Reconciliation to cash and cash equivalents
The following table presents a reconciliation between the cash flow statements and the cash and cash equivalents as presented in the balance sheet.
| Year ended at 31 December | 2007 | variance % | 2006 |
| Cash at the beginning of the year | 326 | (50.8) | 663 |
| Cash from divested businesses | (29) | (48) | |
| Exchange rate differences | (3) | (5) | |
| Total change in cash (as in consolidated cash flow statements) | 1 | (284) | |
| Cash at the end of the year | 295 | (9.5) | 326 |
| of which dicontinued business | 0 | (29) | |
| Cash at the end of the year as reported | 295 | (0.7) | 297 |
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Additional notes
28 Business combinations
(No corresponding financial statement number)
Summary of principal acquisitions in the year 2007
| Company name | Segment | Month acquired | % owner | Acquisition Cost | Goodwill on Acquisition |
| Expresso Mercúrio S.A. | Express | January | 100% | 148 | 135 |
| Huayu Hengye Logistics Company Limited | Express | March | 100% | 136 | 97 |
| Regio - ES GmbH Private Briefbeförderung | January | 100% | 6 | 5 | |
| Mail Express GmbH | December | 100% | 4 | 4 | |
| Other acquisitions (including some remaining shares) | 20 | 15 | |||
| Total | 314 | 256 | |||
|
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Goodwill arising from the acquisitions of interest in newly acquired group companies and from extending TNT’s interest in group companies amount to €256 million (2006: 99). The total acquisition costs amount to €314 million (2006: 110) of which €287 million was paid in cash (2006: 89). The acquisition costs of €314 million also include an amount of €12 million of acquired cash and an amount of €15 million to be paid as at 31 December 2007 being the contingent consideration.
The larger acquisitions in 2007 relate to Expresso Mercúrio S.A. (Mercúrio) and Huaya Hengji Logistics Company LIM (Hoau). On these acquisitions an amount of goodwill of €232 million was recognised.
TNT acquisitions in 2007 have generally centred on addressing TNT’s long term strategic plans. The main factors that contributed to a cost that resulted in the recognition of goodwill are summarised below:
- Mercúrio is market leader in the Brazilian domestic express market and provides TNT with a platform to further develop an integrated South American road express network. Combining Mercúrio’s domestic road network with TNT’s international air and road network capacity is an embodiment of TNT’s focus on networks strategy.
- Acquiring Hoau is at the core of TNT’s strategic focus on integrated domestic and international networks and it enables the company to link China to TNT’s Asian road network.
The pre-acquisition balance sheets and the opening balance sheets of the acquired businesses is summarised in the table below:
| Pre-acquisition balance sheets (unaudited) | Acquisitions | |
| Goodwill | 4 | 260 |
| Other non-current assets | 38 | 101 |
| Total non-current assets | 42 | 361 |
| Total current assets | 53 | 54 |
| Total assets | 95 | 415 |
| Equity | 8 | 312 |
| Non-current liabilities | 47 | 62 |
| Current liabilities | 40 | 41 |
| Total liabilities and equity | 95 | 415 |
|
||
Other non-current assets include an amount of approximately €65 million relating to separately identified intangible assets.
Acquiree’s results
The total acquiree’s net income attributable to shareholders accounted within TNT, since acquisition date, amounts to -€16 million. This relates to Mercúrio for an amount of -€9 million, Hoau for an amount of -€6 million and to other acquisitions for an amount of -€1 million.
| Expresso Mercúrio S.A. | Huayu Hengye Logistics Company Limited | |||
| Pre-acquisition balance sheets (unaudited) | Acquisition | Pre-acquisition balance sheets (unaudited) | Acquisition | |
| Goodwill | 0 | 135 | 0 | 97 |
| Other non-current assets | 26 | 61 | 11 | 37 |
| Total non-current assets | 26 | 196 | 11 | 134 |
| Total current assets | 26 | 26 | 13 | 14 |
| Total assets | 52 | 222 | 24 | 148 |
| Equity | (12) | 143 | 13 | 137 |
| Non-current liabilities | 46 | 61 | 1 | 1 |
| Current liabilities | 18 | 18 | 10 | 10 |
| Total liabilities and equity | 52 | 222 | 24 | 148 |
|
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Pro-forma results
The following represents the pro-forma results of TNT for 2007 as if these acquisitions had taken place on 1 January 2007. These pro-forma results do not necessarily reflect the results that would have arisen had these acquisitions actually taken place on 1 January 2007, nor are they necessarily indicative of the future performance of TNT. This calculation also includes the impact of amortisation of identified intangible assets.
| Year ended at 31 December | Pro-forma results (unaudited) 2007 | As reported 2007 |
| Total revenues | 11,071 | 11,017 |
| Profit for the period from continuing operations | 777 | 783 |
| Profit attributable to the equity holders of the parent | 979 | 986 |
| Earnings per ordinary share (in € cents) | 255.6 | 257.4 |
| Earnings per diluted ordinary share (in € cents) | 254.2 | 256.1 |
|
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29 Commitments and contingencies
(No corresponding financial statement number)
| At 31 December | 2007 | 2006 |
| Commitments relating to: | ||
| Financial guarantees | 227 | 211 |
| Operating guarantees | 218 | 137 |
| Rent and operating lease | 959 | 909 |
| Capital expenditure | 42 | 150 |
| Repurchases own shares | 6 | 113 |
| Purchase commitments | 80 | 58 |
|
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Of the total commitments indicated above, €528 million are of a short term nature (2006: 662).
Financial and operating guarantees
Total guarantees at 31 December 2007 were €445 million (2006: 348). Of these guarantees, TNT issued corporate guarantees up to the amount of €295 million (2006: 183). Banks and other financial institutions issued guarantees up to the amount of €150 million (2006: 165). The obligations under the bank guarantees have been secured by the company or its subsidiaries.
Of the amount of €445 million, financial guarantees amounted to €227 million (2006: 211) and were mainly issued in connection with TNT’s obligations under lease contracts, custom duty deferment, airline cargo services, credit lines and insurance contracts. Operating guarantees amounted to €218 million (2006: 137) and were mainly issued in connection with mailing and other service performance contracts.
Rent and operating lease contracts
In 2007 operational lease expenses (including rental) in the consolidated statements of income amounted to €404 million (2006: 375). Future payments on non-cancellable existing lease contracts mainly relating to real estate, computer equipment and other equipment were as follows:
| At 31 December | ||
| Payable in the period | 2007 | 2006 |
| Less than 1 year | 249 | 222 |
| Between 1 and 2 years | 208 | 199 |
| Between 2 and 3 years | 144 | 146 |
| Between 3 and 4 years | 94 | 102 |
| Between 4 and 5 years | 64 | 65 |
| Thereafter | 200 | 175 |
| Total | 959 | 909 |
| of which guaranteed by a third party/customers | 9 | 3 |
|
||
Capital expenditure
Commitments in connection with capital expenditure were €42 million (2006: 150) mainly related to property, plant and equipment of €21 million and €1 million related to intangible assets. These commitments primarily related to projects within the operations of the Express division.
Repurchases own shares
Under the first €200 million tranche of the €500 million repurchase programme, announced on 9 November 2007 (also see note 9), TNT purchased shares for a total amount of €6 million after 31 December 2007. As at 4 January 2008, TNT completed this first tranche of the €500 million repurchase programme.
Purchase commitments
At 31 December 2007 TNT had unconditional purchase commitments of €80 million (2006: 58) which were primarily related to various service and maintenance contracts. These contracts for service and maintenance related primarily to information technology, security, salary registration, cleaning and aircraft.
Contingent tax liabilities
Multinational groups of the size of TNT are exposed to varying degrees of uncertainty related to tax planning and regulatory reviews and audits. TNT accounts for its income taxes on the basis of its own internal analyses, supported by external advice. TNT continually monitors its global tax position, and whenever uncertainties arise, TNT assesses the potential consequences and either accrues the liability or discloses a contingent liability in its financial statements, depending on the strength of the company’s position and the resulting risk of loss.
As previously disclosed, since August 2004, TNT has been preparing an addendum to its original report to the UK tax authorities that covers UK tax matters that were not the subject of the original investigation. In 2006 TNT 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. In December 2007 a full closure has been brought to all tax investigations with the settlement of all UK tax matters with no additional liabilities beyond what had been accrued for in previous years.
Contingent legal liabilities
Ordinary course litigation
The company is involved in several legal proceedings relating to the normal conduct of its business, such as claims for loss of goods, delays in delivery, trademark infringements, subcontracting and employment issues, and general liability. The majority of these claims are for amounts below €1 million and are insured and/or provided for. TNT does not expect any liability arising from any of these legal proceedings to have a material effect on its results of operations, liquidity, capital resources or financial position. The company believes it has 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 TNT’s Express division’s French operations alleging that TNT’s subcontractors or their employees should be regarded as TNT’s own unregistered employees. The actions 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 TNT’s competitors.
Of the cases on which the company reported in its 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 TNT’s request by the French Supreme Court, the company has brought this matter to the attention of the European Court of Human Rights, which has agreed to hear the case. TNT 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 year or two 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.
30 Financial risk management
(No corresponding financial statement number)
TNT’s activities expose the company to a variety of financial risks, such as market risks (including foreign currency exchange risk and interest rate risk), credit risk and liquidity risk. All of these risks arise in the normal course of business. In order to manage the market risks TNT utilises a variety of financial derivatives.
The following analyses provide quantitative information regarding TNT’s exposure to the financial risks described above. There are certain limitations inherent in the analyses presented, primarily due to the assumption that rates change in a parallel fashion and instantaneously. In addition, the analyses are unable to reflect the complex market reactions that normally would arise from the market shifts assumed.
TNT uses derivative financial instruments solely for the purpose of hedging exposures. The company enters into contracts related to derivative financial instruments for periods commensurate with its underlying exposures and does not take positions independent of these exposures. None of these financial instruments are leveraged or used for trading purposes or to take speculative positions.
Financial risk management is carried out by Group Treasury under policies approved by the Board of Management. Group Treasury identifies, evaluates and hedges financial risks in close cooperation with operating units. The Board provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk and liquidity risk. Periodic reporting on financial risks has been embedded in the overall risk framework and has been provided to the Board of Management in a structural way.
Interest rate risk
Part of TNT’s borrowings and leases are against floating interest rates. These floating interest rates may fluctuate substantially and could have a material adverse effect on TNT’s financial results in any given reporting period. Borrowings that are issued at variable rates, expose the company to cash flow interest risks. Borrowings that are issued at fixed rates expose the company to fair value interest rate risk. TNT’s financial assets are on average of such short term nature that they bear no significant interest rate risks.
Group policy is to significantly limit the impact of interest fluctuations over a term of seven years as a percentage of earnings before interest, taxes, deprecation and amortisation. At 31 December 2007, TNT’s gross interest bearing borrowings, including finance lease obligations, totalled €2,085 million (2006: 1,566), of which €1,860 million (2006: 1,290) was at fixed interest rate.
Although, TNT generally enters into interest rate swaps and other interest rate derivatives in order to attempt to reduce its exposure to interest rate fluctuations, these measures may be inadequate or may subject the company to increased operating or financing costs.
At 31 December 2007, if interest rates on borrowings had been 1% higher with other variables held constant the profit before income tax would have been €3 million lower, mainly due to €500 million of outstanding interest rate swaps (see also note 31) (2006: -5). The profit before income taxes is less sensitive to interest rate movements compared to 2006 due to a decrease in short term interest bearing debt. Equity would be impacted by €36 million positive (2006: 42), due to the outstanding forward starting interest rate swaps and the USD interest rate swap(s), see note 31.
Foreign currency exchange risk
TNT operates on an international basis generating foreign currency exchange risks arising from future commercial transactions, recognised assets and liabilities, investments and divestments in foreign currencies other than the euro, TNT’s functional and reporting currency. TNT’s treasury department matches and manages the intragroup and external financial exposures. Although the company generally enters into hedging arrangements and other contracts in order to reduce its exposure to currency fluctuations, these measures may be inadequate or may subject the company to increased operating or financing costs.
The main two currencies of TNT’s external hedges are the British pound and US dollar of which the 2007 exchange rates are shown below:
| Year end closing 1 | Annual average 2 | |
| British pound | 0.7334 | 0.6869 |
| US dollar | 1.4721 | 1.3789 |
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Management has set up a policy to require group companies to manage their foreign exchange risk against the functional currency. Group companies are required to hedge material balance sheet exposures via the use of foreign exchange derivatives with Group Treasury, whereby a financing company operated by Group Treasury, as ‘in-house-bank’ trades these foreign exchange derivatives back-to-back with external banks. TNT currently has no net investment hedges outstanding. Significant acquisitions and local debt is usually funded in the currency of the underlying assets.
At 31 December 2007, if the euro had weakened 25% against the US Dollar with all other variables held constant, the profit before income tax would have been €1 million higher (2006: -35). The profit before income taxes is less sensitive to movements in EUR /USD exchange rates compared to 2006 due to the decreased USD exposure. Equity would be impacted by €4 million (2006: 5).
At 31 December 2007, if the euro had weakened 25 % against the British pound with all other variables held constant the profit before income tax would have been €1 million lower (2006: 5). The profit before income taxes is less sensitive to movements in EUR/GBP exchange rates compared to 2006 due to the decreased GBP exposure. Equity would be impacted by €1 million (2006: 2).
Credit risk
Credit risk represents the loss that the company would incur if counterparties with whom TNT enters into financial transactions are unable to fulfill the terms of the agreements. Credit risk arises from cash and cash equivalents, derivatives and deposits with banks and financial institutions as well as credit exposures relating to customers. The company attempts to minimise its credit risk exposure by only transacting to financial institutions that meet established credit guidelines and by managing its customer’s portfolio. TNT continually monitors the credit standing of financial counterparties and its customers. Individual risk limits are set on internal and external ratings in accordance with limits set by the board. The utilisation of credit limits is regularly monitored. At reporting date there were no significant concentrations of credit risk.
Liquidity risk
Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, TNT attempts to maintain flexibility in funding by keeping committed credit lines available. A downgrade in TNT’s credit rating may negatively affect its ability to obtain funds from financial institutions and banks and increase its financing costs by increasing the interest rates of its outstanding debt or the interest rates at which the company is able to refinance existing debt or incur new debt. Furthermore, other non TNT specific adverse market conditions could also turn out to have a material adverse effect on the company’s funding ability.
TNT has the following committed facilities:
| At 31 December | 2007 | 2006 |
| Multicurrency Revolving Credit Facility | 1,000 | 1,000 |
| Multicurrency Revolving Credit Facility | 600 | |
| Total commited facilities | 1,000 | 1,600 |
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The multicurrency revolving credit facility of €600 million has been terminated as this was not longer necessary, partly due to the issuance of the 5,375% Eurobond 2017 of €650 million.
The table below analyses TNT’s financial liabilities into relevant maturity groupings based on the remaining period on the balance sheet to the contractual maturity date. The outgoing flows disclosed in the table are the contractual undiscounted cash flows which contain the redemptions and interest payments.
| Liquidity risk schedule | Less than 1 year | Between 1 and 3 years | Between 3 and 5 years | Thereafter | Bookvalue |
| Outgoing flows based on the financial liablities 2007 | |||||
| Euro Bonds | 729 | 101 | 101 | 1,271 | 1,656 |
| Other loans | 92 | 3 | 2 | 5 | 105 |
| Financial leases | 47 | 65 | 64 | 263 | 241 |
| Interest rate swaps - outgoing | 52 | 49 | 298 | 27 | 37 |
| Foreign exchange contracts - outgoing | 642 | 9 | |||
| Short term bank debt | 46 | 46 | |||
| Trade accounts payable | 336 | 336 | |||
| Other current liabilities | 149 | 149 | |||
| Mitigation incoming flows based on the financial liabilities 2007 | |||||
| Interest rate swaps - incoming | 49 | 38 | 271 | 28 | |
| Foreign exchange contracts - incoming | 642 | ||||
| 1,402 | 180 | 194 | 1,538 | 2,579 | |
| Outgoing flows based on the financial liablities 2006 | |||||
| Euro Bonds | 49 | 710 | 31 | 462 | 1,004 |
| Other loans | 336 | 12 | 2 | 6 | 340 |
| Financial leases | 20 | 40 | 41 | 117 | 158 |
| Interest rate swaps - outgoing | 41 | 29 | 23 | ||
| Foreign exchange contracts - outgoing | 621 | 6 | |||
| Short term bank debt | 41 | 41 | |||
| Trade accounts payable | 308 | 308 | |||
| Other current liabilities | 163 | 163 | |||
| Assets held for sale | 136 | 136 | |||
| Mitigation incoming flows based on the financial liabilities 2006 | |||||
| Interest rate swaps - incoming | 26 | 26 | |||
| Foreign exchange contracts - incoming | 621 | ||||
| 1,068 | 765 | 74 | 585 | 2,179 | |
| |||||
The outgoing cash flows in 2007 relating to the Eurobond of €729 million consist of the redemption of the nominal value of €646 million of the 5.125% Eurobond 2008 due at 5 December 2008. The remainder consist of interest to be paid of all the outstanding bond which occur at June, November and December
Capital structure management
It is TNT’s objective when managing capital structure to safeguard its ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure. TNT’s capital structure is managed along the following components: (I) maintain a credit rating at investment grade around “BBB+ level”; (2) an availability of at least €500 million of undrawn committed facilities (via a €1,000 million euro commercial paper programme supported by a bank facility until 2012); (3) structured funding via a combination of public and bank debt, with a risk weighted mix of fixed and floating interest; (4) cash pooling systems facilitating optimised cash requirements for the group and (5) a tax optimal internal and external funding focused at optimising the cost of capital for the group, within long term sustainable boundaries.
31 Financial instruments
(No corresponding financial statement number)
Summary financial instruments
The accounting policies for financial instruments have been applied to the following line items:
| At 31 December | Note | Loans and receivables | Financial assets at fair value through profit and loss | Held to maturity investments | Available for sale | Total |
| Assets as per balance sheet 2007 | ||||||
| Other loans receivable | 3 | 5 | 5 | |||
| Other prepayments and accrued income | 3 | 21 | 13 | 34 | ||
| Accounts receivable | 5 | 1,656 | 1,656 | |||
| Prepayments and accrued income | 6 | 231 | 5 | 236 | ||
| Cash and cash equivalents | 7 | 295 | 295 | |||
| Total | 2,208 | 18 | 0 | 0 | 2,226 | |
| Assets as per balance sheet 2006 | ||||||
| Other loans receivable | 3 | 7 | 7 | |||
| Other prepayments and accrued income | 3 | 21 | 17 | 38 | ||
| Accounts receivable | 5 | 1,561 | 1,561 | |||
| Prepayments and accrued income | 6 | 224 | 3 | 227 | ||
| Cash and cash equivalents | 7 | 297 | 297 | |||
| Assets held for sale | 173 | 173 | ||||
| Total | 2,283 | 20 | 0 | 0 | 2,303 | |
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| At 31 December | Note | Financial liabilities measured at amortised costs | Financial liabilities through profit and loss | Total |
| Liabilities as per balance sheet 2007 | ||||
| Long term debt | 13 | 1,265 | 29 | 1,294 |
| Trade accounts payable | 336 | 336 | ||
| Other current liabilities | 14 | 932 | 17 | 949 |
| Total | 2,533 | 46 | 2,579 | |
| Liabilities as per balance sheet 2006 | ||||
| Long term debt | 13 | 1,164 | 19 | 1,183 |
| Trade accounts payable | 308 | 308 | ||
| Other current liabilities | 14 | 542 | 10 | 552 |
| Liabilities related to assets classified as held for sale | 136 | 136 | ||
| Total | 2,150 | 29 | 2,179 | |
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Eurobond
The total €1,696 million (2006: 1,046) of Eurobonds is measured at amortised cost of €1,664 million (2006: 1,015), being the nominal value corrected for the costs and issuance under par (‘at a discount’) that is still to be amortised. A fair value adjustment of positive €8 million (2006: 11) will adjust the amortised cost value to the book value (‘carrying value’) of €1,656 million (2006: 1,004). The fair value adjustment of positive €8 million (2006: 11) is mitigated by the negative €8 million (2006: -11) of fair value on the €500 million (2006: 500) of interest rate swaps outstanding for which TNT receives fixed interest and pays floating interest. These interest rate swaps act as a hedge against the fair value interest rate risk of TNT’s 5.125% December 2008 Eurobond.
For the outstanding Eurobonds, see the table below:
| At 31 December | Nominal value | Costs / discount to be amortised | Hedge accounting | Fair value adjustment | Carrying value | Fair value |
| Eurobonds 2007 | ||||||
| 5.125% Eurobond 2008 | 646 | 1 | Yes | 8 | 637 | 645 |
| 3.875% Eurobond 2015 | 400 | 27 | No | 373 | 390 | |
| 5.375% Eurobond 2017 | 650 | 4 | No | 646 | 688 | |
| 1,696 | 32 | 8 | 1,656 | 1,723 | ||
| Eurobonds 2006 | ||||||
| 5.125% Eurobond 2008 | 646 | 2 | Yes | 11 | 633 | 660 |
| 3.875% Eurobond 2015 | 400 | 29 | No | 371 | 400 | |
| 1,046 | 31 | 11 | 1,004 | 1,060 | ||
|
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The fair value has been calculated against the relevant market rates at 31 December 2007.
Finance leases
Total debt on finance leases consist of financial lease contracts on buildings (depots), trucks and airplanes. The increase mainly relates to the increase in the long term portion of finance leases as a consequence of the lease of the second Boeing 747-ERF.
For the outstanding finance leases, see the table below:
| At 31 December | Nominal value | Fixed / floating interest | Hedge accounting | Carrying value | Fair value |
| Finance leases 2007 | |||||
| Boeing 747 ERF | 186 | floating | Yes | 186 | 186 |
| Other leases | 55 | floating / fixed | No | 55 | 52 |
| 241 | 241 | 238 | |||
| Finance leases 2006 | |||||
| Boeing 747 ERF | 104 | floating | Yes | 104 | 106 |
| Other leases | 54 | floating / fixed | No | 54 | 49 |
| 158 | 158 | 155 | |||
|
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The fair value has been calculated against the relevant market rates at 31 December 2006.
Interest rate swaps
TNT has €500 million (2006: 500) of interest rate swaps outstanding for which TNT receives fixed and pays floating interest. These interest rate swaps act as a hedge against the fair value interest rate risk of TNT’s 5.125% December 2008 Eurobond. Furthermore TNT has €400 million (2006: 600) of forward starting interest rate swaps outstanding that hedge the yearly future cash flow risk on the interest costs of the next to occur debt. Of the total of €1,000 million of forward starting swaps, €600 million was unwound upon issuance of the €650 million 2017 Eurobond.
In 2006 a US$154 million forward starting interest rate swap was outstanding to hedge the variability in the future interest payments on the second Boeing 747-ERF finance lease. This swap became effective upon execution of this second lease contract. At the end of 2007 TNT has US$287 million (2006: 139) of interest rate swaps outstanding for which the company receives floating US$ interest and pays 5%. These interest rate swaps act as a hedge against the cash flow interest rate risk on the floating interest component within the Boeing 747-ERF finance lease contracts.
As all forward starting swaps have been designated as cash flow hedges, the market value movements of the effective portion of the hedges have been included in equity. TNT has unwound €600 million and US$154 million of outstanding forward starting interest rate swaps whereby the company paid a total market value of €4 million. Because the forward starting interest rate swaps have been designated as a cash flow hedges, the market value will stay in equity and will be straight-line amortised to income.
The total ineffective portion recognised in the income statement that arises from the usage of fair value hedges amounts to a profit/loss of €0 million (2006: 0 million). The total ineffective portion recognised in the income statement that arises from the usage of cash flow hedges amounts to a loss of €1 million (2006: 0 million).
An overview of interest rate swaps is presented below:
| At 31 December | ||||||||
| Nominal | Forward Starting | Currency | Outstanding | Pay | Receive | Hedge | Fair value in Euro | Settlement amount in Euro |
| Interest rate swaps 2007 | ||||||||
| 500 | No | Euro | Yes | floating | fixed | fair value | (8) | |
| 400 | Yes | Euro | Yes | fixed | floating | cash flow | 1 | |
| 600 | Yes | Euro | No | fixed | floating | cash flow | ||
| 139 | No | USD | Yes | fixed | floating | cash flow | (2) | |
| 148 | No | USD | Yes | fixed | floating | cash flow | (4) | |
| 154 | Yes | USD | No | fixed | floating | cash flow | (3) | |
| 250 | No | Euro/USD | Yes | floating | floating | cash flow | (23) | |
| Interest rate swaps 2006 | ||||||||
| 500 | No | Euro | Yes | floating | fixed | fair value | (11) | |
| 600 | Yes | Euro | Yes | fixed | floating | cash flow | (8) | |
| 139 | No | USD | Yes | fixed | floating | cash flow | 1 | |
| 152 | Yes | USD | No | fixed | floating | cash flow | (5) | |
| 154 | Yes | USD | Yes | fixed | floating | cash flow | (4) | |
|
||||||||
The fair value has been calculated against the relevant market rates at 31 December 2007 and 31 December 2006 respectively.
Foreign exchange contracts
In 2007 TNT entered into short term foreign exchange derivatives to hedge foreign exchange fair value and cash flow risks. The fair value of these outstanding foreign exchange hedges is recorded as a current asset in ‘prepayments and accrued income’ or as a current liability in ‘total current borrowings’. The foreign exchange result on the outstanding fair value hedges is recorded in the income statement and mitigates the foreign exchange exposure and results on the underlying balance sheet items.
The fair value has been calculated against the relevant market rates at 31 December 2007 and 31 December 2006 respectively.
The details relating to outstanding foreign exchange contracts as per 31 December 2007 are presented below:
| At 31 December Nominal | Fair value | Hedge | Amount in equity |
| Foreign exchange contracts 2007 | |||
| 461 | 5 | Fair value | 0 |
| 642 | (9) | Fair value | 0 |
| Foreign exchange contracts 2006 | |||
| 282 | 3 | Fair Value | 0 |
| 621 | (6) | Fair Value | 0 |
|
|||
The cash flow hedges on highly probable forecasted transactions denominated in foreign currency are expected to occur at various dates during the next 12 months. Gains and losses recognised in the hedging reserve in equity on the effective portion of the forward exchange contracts as of 31 December 2007 amount to €0 (2006: 0). These reserves are recognised in the income statement in the period or periods during which the hedged forecasted transaction affects the income statement.
The total ineffective portion recognised in the income statement that arises from the usage of fair value hedges amounts to a profit/loss of €0 million (2006: 0 million). The total ineffective portion recognised in the income statement that arises from the usage of cash flow hedges amounts to a profit/loss of €0 million (2006: 0 million).
32 Earnings per share
(No corresponding financial statement number)
To compute diluted earnings per share, the average number of shares outstanding is adjusted for the average number of all potentially dilutive shares. At 31 December 2007 TNT had potential obligations under stock options and share grants to deliver 3,294,553 shares (2006: 4,553,308). There was no difference in the income attributable to shareholders in computing TNT’s basic and diluted earnings per share.
For calculating basic earnings per share, an average of 383,028,938 ordinary shares is taken into account. For calculating diluted earnings per share an average number of 385,071,986 ordinary shares is taken into account.
The following table summarises TNT’s computation related to earnings per share and diluted earnings per share:
| Year averages and numbers at 31 December | 2007 | 2006 |
| Number of issued and outstanding ordinary shares | 379,224,255 | 422,767,601 |
| Shares held by the company to cover share plans | 1,716,060 | 2,884,441 |
| Shares held by the company for cancellation | 6,977,275 | 27,640,543 |
| Average number of ordinary shares per year | 383,028,938 | 420,701,641 |
| Diluted number of ordinary shares per year | 2,043,048 | 3,157,581 |
| Average number of ordinary shares per year on fully diluted basis in the year | 385,071,986 | 423,859,222 |
33 Joint ventures
(No corresponding financial statement number)
The company accounts for joint ventures in which TNT and another party have equal control according to the proportionate consolidation method. TNT’s only significant joint venture as at 31 December 2007 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 TNT’s joint ventures in which TNT has joint decisive influence over operations is set forth below and includes balances at 50%:
| Year ended at 31 December | 2007 | 2006 |
| Non-current assets | 48 | 54 |
| Current assets | 155 | 182 |
| Equity | 54 | 56 |
| Non-current liabilities | 77 | 95 |
| Current liabilities | 72 | 85 |
| Net sales | 339 | 395 |
| Operating income | 15 | 18 |
| Profit attributable to the shareholders | 12 | 10 |
| Net cash provided by operating activities | 5 | 22 |
| Net cash used in investing activities | (3) | (8) |
| Net cash used in financing activities | (13) | (14) |
| Changes in cash and cash equivalents | (11) | 0 |
|
||
34 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 TNT holds 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 2007, sales made by TNT companies to its joint ventures amounted to €18 million (2006: 8). Purchases of TNT from joint ventures amounted to €83 million (2006: 103). The net amounts due to the joint venture entities amounted to €65 million (2006: 58). As at 31 December 2007, no material amounts were payable by TNT to associated companies.
35 Segment information
(No corresponding financial statement number)
The presentation of segment information in the consolidated financial statements is presented from a product perspective. The Board of Management receives operational and financial information on a monthly basis which is primarily based on the different products and customer solutions TNT offers. In addition, segment information from a geographical perspective has been presented to give an overview of the main markets. TNT distinguishes between the following three reportable segments:
-
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.
-
Other networks business. The Other network business provides time-critical deliveries to individually agreed delivery point for business customers during the night.
Although the Other networks business does not meet the quantitative thresholds as required by IFRS 8, management concluded that this segment should be reported, as this segment has its own network apart from the Express and Mail business and falls under the responsibility of the Chief Financial Officer.
The measure of profit and loss and assets and liabilities is based on the TNT Group Accounting Policies which are compliant with IFRS.
The pricing of intercompany sales is done at arms’ length.
Segmentation - results
In the table below a reconciliation is presented of the segment information relating to the income statement of the reportable segments.
| Year ended at 31 December 2007 | Express | Other networks | Inter- company | Non- allocated | Total | |
| Net sales | 6,434 | 4,197 | 251 | 3 | 10,885 | |
| Inter-company sales | 14 | 11 | 2 | (27) | ||
| Other operating revenues | 103 | 26 | 3 | 132 | ||
| Total operating revenues | 6,551 | 4,234 | 256 | (27) | 3 | 11,017 |
| Other income | 9 | 64 | 2 | 75 | ||
| Depreciation/impairment property, plant and equipment | (163) | (108) | (2) | (3) | (276) | |
| Amortisation/impairment intangibles | (46) | (27) | (73) | |||
| Total operating income | 599 | 626 | 11 | (44) | 1,192 | |
| Net financial income/(expense) | (94) | |||||
| Results from investments in associates | 1 | |||||
| Income tax | (316) | |||||
| Profit/(loss) from discontinued operations | 206 | |||||
| Profit for the period | 989 | |||||
| Attributable to: | ||||||
| Minority interests | 3 | |||||
| Equity holders of the parent | 986 | |||||
| Number of employees | 75,032 | 84,929 | 1,385 | 236 | 161,582 | |
|
||||||
Taxes and net financial income are dealt with at group level and not within the reportable segments. As a result this information is not presented as part of the reportable segments. The key financial performance indicator for management of the reportable segments is operating income, which is reported on a monthly basis to the chief operating decision makers.
The material exceptional items in the 2007 income statement are the restructuring charges of €110 million and the onerous contract provision of €23 million within the Mail division.
These exceptional items are non-cash movements. Other material non-cash items are the pension costs of €45 million with in Mail division (2006: 120).
In 2006 the decision was taken to divest the freight management business and in 2005 to divest the logistics business. As a consequence the discontinued business was not included in the segment information shown.
| Year ended at 31 December 2006 | Express 2 | Other networks 2 | Inter- company | Non- allocated | Total | |
| Net sales | 5,672 | 4,025 | 250 | 1 | 9,948 | |
| Inter-company sales | 7 | 8 | 5 | (20) | ||
| Other operating revenues | 79 | 32 | 1 | 112 | ||
| Total operating revenues | 5,758 | 4,065 | 256 | (20) | 1 | 10,060 |
| Other income | 4 | 58 | 2 | 1 | 65 | |
| Depreciation/impairment property, plant and equipment | (140) | (107) | (2) | (6) | (255) | |
| Amortisation/impairment intangibles | (35) | (28) | 1 | (1) | (63) | |
| Total operating income 1 | 560 | 761 | 7 | (52) | 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 period | 671 | |||||
| Attributable to: | ||||||
| Minority interests | 1 | |||||
| Equity holders of the parent | 670 | |||||
| Number of employees | 52,638 | 84,731 | 1,422 | 431 | 139,222 | |
|
||||||
In 2007, non-allocated operating costs amounted to €44 million (2006: 52). Included in these costs was €13 million (2006: 14) for business initiatives, which mainly related to investigations to optimise TNT’s network strategy introduced in 2005 and costs relating to an initiative to further drive value “below the line”. Costs made to support the World Food Programme (WFP) and Planet Me amounted to €10 million (2006: 8). Included in the costs for the WFP were costs for knowledge transfer, hands on support, raising awareness and funds for the WFP including cash donations. Planet Me is a TNT initiative to have an active contribution to reduce CO2 emissions to avoid further global warming. The other costs were €21 million (2006: 30), which represent a decrease of €9 million mainly related to lower costs for tax investigations.
| Year ended at 31 December | ||
| Non-allocated operating income | 2007 | 2006 |
| Business initiatives | (13) | (14)1 |
| World Food Programme | (10) | (8) |
| Other costs | (21) | (30) |
| Total | (44) | (52) |
|
||
Balance sheet information
Below a reconciliation is presented of the segment information relating to the balance sheet of the reportable segments.
| At 31 December 2007 | Express | Other networks | Non- allocated | Total | |
| Goodwill paid in the year | 236 | 20 | 256 | ||
| Intangible assets | 1,748 | 330 | 43 | (2) | 2,119 |
| Capital expenditure on property, plant and equipment | 315 | 73 | 2 | 390 | |
| Property, plant and equipment | 1,162 | 609 | 8 | 6 | 1,785 |
| Investments in associates | 2 | 1 | 80 | 83 | |
| Accounts receivable | 1,147 | 441 | 35 | 33 | 1,656 |
| Total assets 1 | 4,504 | 1,622 | 95 | 864 | 7,085 |
| Total liabilities | 1,483 | 1,113 | 27 | 2,511 | 5,134 |
|
|||||
The capital expenditure relating to intangible assets amount to €69 million for Express (2006: 64) and €26 million for Mail (2006: 0) and nil for Other networks (2006:0).
The balance sheet information at 31 December 2006 is as follows:
| At 31 December 2006 | Express 1 | Other networks 1 | Non- allocated | Total | |
| Goodwill paid in the year | 58 | 41 | 99 | ||
| Intangible assets | 1,437 | 301 | 43 | 4 | 1,785 |
| Capital expenditure on property, plant and equipment | 327 | 84 | 2 | 4 | 417 |
| Property, plant and equipment | 1,008 | 651 | 7 | 12 | 1,678 |
| Investments in associates | 1 | 1 | 56 | 58 | |
| Accounts receivable | 992 | 415 | 33 | 121 | 1,561 |
| Total assets 2 | 3,912 | 2,111 | 94 | 691 | 6,808 |
| Total liabilities 3 | 1,351 | 1,880 | 37 | 1,532 | 4,800 |
|
|||||
Geographical segment information
The segment information from a geographical perspective is derived as follows:
- 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.
| Year ended at 31 December | 2007 | 2006 |
| Europe | ||
| The Netherlands | 3,619 | 3,633 |
| United Kingdom | 1,599 | 1,349 |
| Italy | 825 | 774 |
| Germany | 1,041 | 950 |
| France | 703 | 649 |
| Belgium | 300 | 277 |
| Rest of Europe | 1,158 | 1,130 |
| Americas | ||
| USA and Canada | 52 | 74 |
| Brazil | 244 | 15 |
| South & Middle America | 32 | 28 |
| Africa & the Middle East | 103 | 89 |
| Australia & Pacific | 478 | 442 |
| Asia | ||
| China and Taiwan | 447 | 288 |
| India | 77 | 51 |
| Rest of Asia | 207 | 199 |
| Total net sales | 10,885 | 9,948 |
|
||
The location of the total assets of TNT at 31 December 2007 and the capital expenditures (including finance leases) in 2007 were as follows:
| At 31 December 2007 | Intangible assets | Property, plant and equipment | Financial fixed assets | Pension assets | Trade receivables | Other current assets | Total assets | Capital expenditures assets |
| Europe | ||||||||
| The Netherlands 1 | 1,016 | 655 | 108 | 594 | 256 | 263 | 2,892 | 96 |
| United Kingdom | 188 | 410 | 5 | 232 | 100 | 935 | 111 | |
| Italy | 48 | 35 | 34 | 270 | 61 | 448 | 18 | |
| Germany | 133 | 79 | 61 | 110 | 49 | 432 | 30 | |
| France | 287 | 71 | 11 | 106 | 29 | 504 | 19 | |
| Belgium | 31 | 324 | 3 | 65 | 53 | 476 | 142 | |
| Rest of Europe | 70 | 60 | 11 | 182 | 110 | 433 | 27 | |
| Americas | ||||||||
| USA and Canada | 2 | 34 | 6 | 8 | 50 | 1 | ||
| Brazil | 167 | 35 | 1 | 23 | 13 | 239 | 7 | |
| South & Middle America | 2 | 1 | 9 | 4 | 16 | 2 | ||
| Africa & the Middle East | 3 | 4 | 24 | 16 | 47 | 2 | ||
| Australia & Pacific | 21 | 74 | 48 | 51 | 14 | 208 | 15 | |
| Asia | ||||||||
| China and Taiwan | 117 | 20 | 1 | 69 | 28 | 235 | 10 | |
| India | 34 | 3 | 1 | 15 | 14 | 67 | 1 | |
| Rest of Asia | 4 | 11 | 6 | 34 | 38 | 93 | 6 | |
| Total | 2,119 | 1,785 | 325 | 594 | 1,452 | 800 | 7,075 | 487 |
|
||||||||
The location of the total assets of TNT at 31 December 2006 and the capital expenditures (including finance leases) in 2006 were as follows:
| At 31 December 2006 | Intangible assets | Property, plant and equipment | Financial fixed assets | Pension assets | Trade receivables | Other current assets | Total assets | Capital expenditures assets |
| Europe | ||||||||
| The Netherlands 1 | 1,005 | 692 | 104 | 500 | 255 | 238 | 2,794 | 108 |
| United Kingdom | 168 | 464 | 212 | 98 | 942 | 176 | ||
| Italy | 45 | 36 | 36 | 223 | 63 | 403 | 17 | |
| Germany | 117 | 64 | 125 | 103 | 51 | 460 | 19 | |
| France | 287 | 66 | 12 | 107 | 48 | 520 | 16 | |
| Belgium | 31 | 202 | 4 | 52 | 29 | 318 | 124 | |
| Rest of Europe | 67 | 52 | 8 | 175 | 147 | 449 | 22 | |
| Americas | ||||||||
| USA and Canada | 3 | 1 | 12 | 6 | 22 | 2 | ||
| South & Middle America | 1 | 2 | 1 | 11 | 13 | 28 | 1 | |
| Africa & the Middle East | 2 | 4 | 21 | 13 | 40 | 4 | ||
| Australia & Pacific | 21 | 70 | 16 | 50 | 9 | 166 | 13 | |
| Asia | ||||||||
| China and Taiwan | 5 | 8 | 53 | 46 | 112 | 9 | ||
| India | 35 | 4 | 2 | 11 | 12 | 64 | 4 | |
| Rest of Asia | 1 | 11 | 5 | 34 | 30 | 81 | 5 | |
| Total | 1,785 | 1,678 | 314 | 500 | 1,319 | 803 | 6,399 | 520 |
|
||||||||
The location of employees at year end is as follows:
| Express | Other networks | Non- allocated | 2007 | 2006 | ||
| Europe | ||||||
| The Netherlands | 2,734 | 58,991 | 207 | 234 | 62,166 | 61,269 |
| United Kingdom | 11,977 | 932 | 12,909 | 12,504 | ||
| Italy | 3,171 | 1,363 | 4,534 | 4,284 | ||
| Germany | 4,351 | 14,245 | 967 | 19,563 | 20,473 | |
| France | 4,871 | 27 | 1 | 4,899 | 4,717 | |
| Belgium | 2,445 | 601 | 40 | 3,086 | 2,939 | |
| Rest of Europe | 8,304 | 8,648 | 171 | 17,123 | 16,607 | |
| Americas | ||||||
| USA and Canada | 793 | 51 | 844 | 960 | ||
| Brazil | 6,428 | 6,428 | 201 | |||
| South & Middle America | 549 | 549 | 448 | |||
| Africa & the Middle East | 1,561 | 8 | 1,569 | 1,514 | ||
| Australia & Pacific | 4,935 | 4,935 | 5,011 | |||
| Asia | ||||||
| China and Taiwan | 16,628 | 63 | 1 | 16,692 | 2,619 | |
| India | 2,395 | 2,395 | 2,399 | |||
| Rest of Asia | 3,890 | 3,890 | 3,277 | |||
| Total | 75,032 | 84,929 | 1,385 | 236 | 161,582 | 139,222 |
|
||||||
36 Subsequent events
(No corresponding financial statement number)
Repurchase programme
On 4 January 2008, the company completed a first €200 million tranche (announced on 9 November 2007) of the €500 million share buy-back programme announced on 30 July 2007. TNT repurchased a total of 6,977,275 shares of this first tranche in 2007 and 208,419 shares with a total value of €6 million in 2008.
On 6 December 2007, TNT announced the start of the second €100 million tranche of the €500 million share repurchase programme and completed the buy back of this tranche on 15 February 2008. TNT repurchased a total of 3,849,210 shares of this second tranche in 2008. It is TNT’s intention to cancel the shares repurchased under the €500 million share buy-back programme. A proposal for such cancellation will be included in the agenda of the annual general meeting of shareholders of 2008.
TNT Post Germany
On 21 January 2008 two subsidiaries of TNT Post Germany instituted preliminary legal proceedings with the Administrative Court (Verwaltungsgericht) in Berlin to obtain an injunctive relief (einstweiligen Anordnung) to suspend the generally binding minimum wage in the postal services sector as adopted by the Federal Ministry of Labour and Social Affairs on 28 December 2007. TNT has taken the position that this minimum wage is unconstitutional.
TNT Post is supporting trade union efforts towards achieving a minimum wage that reflects the cost of living and the competitive position of companies in the national and international markets. Since 1 January 2008, TNT Post has been subject to the collective labour agreement of the employers’ association for new postal and delivery services (Arbeitgeberverband Neue Brief- und Zustelldienste).
The contended regulation passed by the German Federal Ministry of Labour and Social Affairs has set the minimum wage negotiated between the trade union ver.di and the employers’ association for postal services. The measure, which has made the minimum wage generally binding for all companies in the postal and delivery services sector, has produced a conflict between two collective labour agreements. In view of fair competition in the postal market, the generally binding validity of the minimum wage agreement of the employers’ association for postal services is unacceptable to TNT Post since it would seriously jeopardise the liberalisation of the German mail market and TNT’s ability to build a sustainable profitable business.
By instituting legal proceedings TNT aims to secure legal certainty for its EMN German operations which employ in total around 14,000 employees and earned €233 million of revenue at an operating loss of €31 million in 2007. So far in total TNT has invested around €80 million in Germany as part of its strategy to become the number one challenger to incumbent European mail operators.
37 Postal regulation and concession
(No corresponding financial statement number)
In the Netherlands, the key legislation regulating TNT’s Mail activities is the Dutch Postal Act. This Act requires TNT to perform the mandatory postal services in the Netherlands, some of which are exclusive to TNT (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 is commonly called the “Postal Concession”. The Postal Concession is performed by TNT’s subsidiary Royal TNT Post B.V.
Furthermore, there is a General Postal Regulations Decree, which specifies TNT’s obligations regarding the performance of mandatory postal services and the transparency of the financial accounting of these services according to the EU Postal Directive.
OPTA, the independent Supervisory Authority for Post and Telecommunications established by the government, supervises TNT’s performance of the mandatory postal services. The responsibility for postal policy remains under the authority of the Minister of Economic Affairs.
On 5 June 2007 the Second Chamber of Parliament adopted a new Postal Act. This Act foresees the full liberalisation of the Dutch postal market ahead of the EU timetable. To ensure that the mandatory postal services are provided, the Act intends to assign Royal TNT Post B.V. the Postal Concession. The Act will have to be approved by the First Chamber of Parliament before it enters into force. The enactment date is dependent on the condition of a level playing field in real terms on the postal markets of Germany and the United Kingdom.
In December 2007, the Dutch Minister of Economic Affairs made use of the so-called ‘emergency-brake procedure’ when liberalisation as of 1 January 2008 was postponed for at least three months. The Minister based his decision on two arguments: First, the lack of clarity about the level playing field with Germany (the effects of the introduction of a minimum wage in the German postal sector are still unknown. In addition, the exemption Deutsche Post enjoys with regard to VAT remains a barrier to competition that is still subject to debate in German politics). Second, in the Netherlands, new postal operators and the unions have been given more time to reach an agreement on employment conditions.
In the coming months a decision of the First Chamber of Parliament is expected on the Postal Act. In February the Minister of Economic Affairs will inform the Second Chamber of Parliament about the status of the level playing field with Germany and labour conditions in the Netherlands. During the course of 2008, lower legislation, i.e. the Postal Decree and General Postal Regulations Decree will be amended to fit the new Postal Act.
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, which are conveyed against separately agreed rates, are part of the mandatory postal services. Mandatory postal services also cover rental of P.O. boxes.
The Postal Act does not require TNT 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 UPU, mandatory postal services mainly comprise the 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.
Regulatory conditions for the provision of mandatory postal services
Regarding mandatory postal services the General Postal Regulations Decree imposes various regulatory conditions on TNT with respect to service provision, tariffs, cost and revenue accounting, financial administration and reporting. Other than the mandatory postal services, none of TNT’s postal services is subject to governmental control.
According to section 2d of the Dutch Postal Act, TNT is obliged to give its competitors entrance to its 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 negotiated results between parties. A similar, voluntary arrangement is made with TNT’s competitors with regard to mail items of competitors that enter TNT’s processes through the collection boxes.
With respect to service levels, the General Postal Regulations Decree requires TNT 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. TNT is required to deliver not less than 95% of all domestic letters the day after the day of posting, not including Sundays and public holidays. TNT is required to maintain a network of service points (letter boxes, post offices and agents) for the access of the general public to the services. With respect to rates and conditions, TNT is required to set rates and associated conditions that are transparent, non-discriminatory and uniform. However, TNT may grant volume discounts for items of correspondence and negotiate specific prices and conditions with high volume users. TNT is further 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 the same services in mutual relations which are representative for consumers and small business users.
The price cap system uses a weighing factor for each service in these 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, TNT has remained able to amend the individual rates for mandatory postal services, subject to the provisions of the tariff control system. As of 1 January 2007, after more than five and a half years without rate changes, the rate for single-item domestic letters up to 20 grammes was increased to €0.44. TNT intends 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.
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 at a rate of less than two and a half times the standard single rate (€0.44).
- the exclusive right to place letter boxes 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. 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 and other financial obligations
TNT’s obligations on reporting include the establishment of an annual report on TNT’s performance of the mandatory postal services. TNT’s financial accounting obligations require TNT to maintain separate financial accounts within its 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 TNT’s other activities. Every year, TNT must submit to OPTA a declaration of an independent auditor, appointed by OPTA, that its 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 cost and revenues to the different types of services. This system complies with the accounting rules laid down in the EU Postal Directive.
Value added tax on postal services
At present, TNT is not allowed to charge value added tax (VAT) on postal items forming part of the mandatory postal services. The flip side of this is that for mandatory postal services TNT cannot deduct the VAT amounts paid on its purchases of services and goods related to the mandatory services. TNT is 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, in the Netherlands there is a level playing field for competitors and TNT on these services. In most other Member States of the European Union the scope of mandatory services is very large. Hence a VAT-exemption is given to national postal operators over a considerable part of the postal market in these countries. According to the European Commission, this distorts the functioning of the Internal Market for postal services. It has launched an infringement procedure against Germany, the United Kingdom and Sweden on this VAT issue in order to resolve it.