GROUP REVENUES AND EARNINGS
The continued operations of the Group relate to the provision of mail services to customers and are accounted for on a daily basis. Results of operations are therefore influenced by the average number of working days in a year.
The following table sets out the financial performance of the Group for the past two years.
Consolidated results
| Year ended at 31 December | 2010 | variance % | 2009 | ||
|---|---|---|---|---|---|
| Total operating revenues | 4,293 | 1.9 | 4,212 | ||
| Other income | 22 | (40.5) | 37 | ||
| Operating expenses excluding depreciation, amortisation and impairments | (3,715) | (8.9) | (3,410) | ||
| EBITDA | 600 | (28.5) | 839 | ||
| Depreciation, amortisation and impairments | (120) | 52.4 | (252) | ||
| Total operating income | 480 | (18.2) | 587 | ||
| as % of total operating revenues | 11.2 | 13.9 | |||
| Net financial expense | (106) | (28.4) | (148) | ||
| Income taxes | (91) | 33.1 | (136) | ||
| Results from investments in associates | (1) | 83.3 | (6) | ||
| Profit for the period from continuing operations | 282 | (5.1) | 297 | ||
| Profit from discontinued operations | 69 | 962.5 | (8) | ||
| Profit for the period | 351 | 21.5 | 289 | ||
| Attributable to: | |||||
| Non-controlling interests | 4 | (50.0) | 8 | ||
| Equity holders of the parent | 347 | 23.5 | 281 | ||
| Earnings per ordinary share (in cents)1 | 92.9 | 21.1 | 76.7 | ||
| Earnings per diluted ordinary share (in cents)2 | 92.5 | 21.4 | 76.2 | ||
| (in € millions, except percentages and per share data) |
- 1
- In 2010 based on an average of 373,536,123 of outstanding ordinary shares (2009: 366,322,316). See note 32.
- 2
- In 2010 based on an average of 375,026,008 of outstanding ordinary shares (2009: 368,966,939). See note 32.
In 2010, the Group had total operating revenues of €4,293 million (2009: 4,212) and other income of €22 million (2009: 37).
Total operating revenues increased by €81 million or 1.9% in 2010 compared to 2009, mainly due to an increase in operating revenues in International of €225 million, offset by lower revenues in Mail in the Netherlands of €166 million due to volume decline and price pressure. Organic operating revenues increased by €72 million (1.7%), mainly due to a strong increase in International following a change in invoicing method due to changes in VAT regulation in Germany, offset by an organic decrease in revenues in Mail in the Netherlands. In 2010, the net negative acquisition and disposal effect compared to 2009 amounted to -€16 million (-0.4%), following divestments in International. Foreign currency exchange rate changes (mainly the euro against the British pound) accounted for an increase of €25 million (0.6%) in operating revenues.
Other income decreased to €22 million (2009: 37) and consisted mainly of the sale of real estate.
Operating expenses, excluding depreciation, amortisation and impairments, increased by €305 million to €3,715 million (2009: 3,410). This was mainly due to the restructuring-related charges for the execution of Master Plan III as discussed below and an increase in work contracted out in International of €197 million related to the change in VAT regulation in Germany. Pension costs decreased by €70 million compared to 2009 due to the inclusion in 2010 of a pension curtailment gain of €74 million related to Master Plan III.
In 2010, total restructuring-related charges amounted to €167 million, which covers the restructuring programme Master Plan III, for a net amount of €159 million and €8 million for a restructuring programme in Data and Document Management, both part of Mail in the Netherlands. The restructuring-related charges of €159 million for Master Plan III consist of an addition of €308 million, total releases of €69 million, the pension curtailment gain of €74 million and a €6 million curtailment gain for other employee benefits.
Total operating income of €480 million decreased by €107 million (18.2%) in 2010 compared to 2009, mainly due to lower operating income for Mail in the Netherlands of €268 million due to net restructuring-related charges following Master Plan III, for a total of €159 million (2009: 16) and a lower contribution due to increased volume decline and price pressure. The decline in Mail in the Netherlands was partly offset by lower impairment charges and other value adjustments in International of €135 million compared to 2009.
Compared to 2009, the profit for the period attributable to the equity holders of the parent increased by €66 million, largely due to a higher contribution from the discontinued Express business of €77 million, lower interest expenses of €42 million and lower taxes of €45 million, partly offset by lower operating income of €107 million.
Group operating expenses
| Year ended at 31 December | 2010 | variance % | 2009 | ||
|---|---|---|---|---|---|
| Cost of materials | 178 | 9.2 | 163 | ||
| Work contracted out and other external expenses | 1,701 | 12.4 | 1,514 | ||
| Salaries and social security contributions | 1,561 | 6.0 | 1,473 | ||
| Depreciation, amortisation and impairments | 120 | (52.4) | 252 | ||
| Other operating expenses | 275 | 5.8 | 260 | ||
| Total operating expenses | 3,835 | 4.7 | 3,662 | ||
| (in € millions, except percentages) |
Group operating expenses, including depreciation, amortisation and impairments, increased by €173 million (4.7%) to €3,835 million in 2010. The organic growth in operating expenses was €181 million (4.9%) mainly due to a €202 million organic increase in work contracted out and other external expenses primarily in International. Foreign currency exchange rate changes accounted for a decline of €25 million (0.7%). The consolidation effect from acquisitions and the deconsolidation effect from disposals accounted for a decrease of €33 million (0.9%).
Work contracted out and other external expenses relate to fees paid for subcontractors, external temporary staff, rent and leases. Total work contracted out and other external expenses increased by €187 million (12.4%) in 2010 compared to 2009, partly due to higher subcontractor cost following the growth realised in International. Work contracted out and other external expenses include €1 million of restructuring-related charges.
In 2010, costs of salaries and social security contributions increased by €88 million to €1,561 million (6.0%). This was mainly caused by total restructuring costs of €149 million and growth in International of €62 million, partly offset by Master Plan cost savings of €93 million as a result of Master Plan restructuring programmes. The organic increase in salary costs of €90 million was largely due to the overall increase in general economic activities.
Total depreciation, amortisation and impairment costs decreased by €132 million compared to 2009, mainly due to the recorded impairment charges and other value adjustments of €146 million within International in 2009, of which €118 million related to goodwill.
Other operating expenses include items such as marketing expenses, other (non-employee related) restructuring-related costs, insurance costs and various other operating costs. Other operating expenses increased by €15 million (5.8%) in 2010 compared to 2009, mainly due to lower compensation of €51 million resulting from the profit and loss pooling arrangement in place with Express (€41 million in 2010 compared to €92 million in 2009). Included in other operating expenses is an amount of €17 million of restructuring-related costs for new Master Plan initiatives and restructuring programmes within Data and Document Management, both in Mail in the Netherlands.
Group operating income
Total operating income for the Group was €480 million in 2010, a decrease of €107 million or 18.2% compared to 2009. This decline is mainly due to restructuring charges in 2010, lower addressed volumes in the Netherlands and negative price-mix effects. This was partly offset by lower pension costs (pension curtailment gain of €74 million in 2010) and recorded impairment charges and other value adjustments of €146 million in International in 2009.
Underlying development 2010 and 2009
Group operating income in 2010 and 2009 was impacted by various non-recurring and exceptional items. In the table below, the reportable segments are presented as Mail in the Netherlands, Parcels and International. ‘Mail other’ represents the unaddressed activities outside the Netherlands classified as held for sale and head office entities, including the difference between the recorded IFRS pension expense for the defined benefit pension plans and the actual cash payments.
In order to analyse the result of the operations excluding such items, management assesses the underlying operating income for a deeper understanding of the business performance.
Underlying operating income 2010
| Year ended at 31 December | Reported 2010 | Restructuring related charges | Impairments and other value adjustments | Other | Bad weather/ Strike | Profit pooling | Pensions | Underlying 2010 | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Mail in NL | 188 | 167 | (6) | 10 | 359 | |||||||||||
| Parcels | 80 | 80 | ||||||||||||||
| International | (29) | 11 | (6) | (24) | ||||||||||||
| Mail other | 241 | (10) | (41) | (25) | 165 | |||||||||||
| Operating income | 480 | 167 | 11 | (22) | 10 | (41) | (25) | 580 | ||||||||
| (in € millions) |
Underlying operating income 2009
| Year ended at 31 December | Reported 2009 | Restructuring related charges | Impairments and other value adjustments | Other | Profit pooling | Pensions | Underlying 2009 | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Mail in NL | 456 | 16 | 6 | 478 | ||||||||||
| Parcels | 57 | 3 | 60 | |||||||||||
| International | (181) | 145 | (20) | (56) | ||||||||||
| Mail other | 255 | 9 | 1 | (1) | (92) | (24) | 148 | |||||||
| Operating income | 587 | 28 | 146 | (15) | (92) | (24) | 630 | |||||||
| (in € millions) |
The 2010 underlying operating income amounts to €580 million (2009: 630). Underlying operating income excludes certain non-recurring and exceptional items such as restructuring related charges of €167 million (2009: 28), the impact of extreme weather conditions and the strike in the Netherlands of €10 million (2009: 0), the impact of the profit pooling arrangement of €41 million (2009: 92), pensions of €25 million (2009: 24) and various other items of -€22 million (2009:-15). Foreign currency exchange rate differences impacted revenue and costs by €25 million each, so operating income was not impacted.
In 2010, the recorded non-recurring restructuring-related charges of €167 million relate to the announced Master Plan III initiatives (€159 million) and to restructuring programmes within Data and Document Management (€8 million).
The 2010 impairment relates to a write down of goodwill allocated to the CGU Spring Global Mail. In 2009, impairment and other value adjustments related mainly to the write down of goodwill and other assets within International.
Until the end of November 2010, a profit pooling arrangement was in place, whereby Express legal entities absorbed fiscal losses of Mail. Given that the new reporting is on a legal entity basis, these losses are reflected as part of the Express numbers in 2010 and 2009. This profit pooling arrangement has been terminated, so will no longer apply in 2011.
In 2010, a portion of the contributed cash pensions related to Express. After the demerger, the current group plan definition in accordance with IAS 19.34a will no longer be valid, as a result of which both new groups will account for their defined benefit pension costs separately. The underlying income adjustments represent the difference between the IFRS expense and the cash contribution paid from Express to the Group.
The various other items in 2010 consist of a refund of the initial OPTA penalties of €6 million in 2009, positive book results on divestments within International of €6 million related to Austria and Germany, and the release of a provision for claims and indemnities of €10 million.
In 2009, operating income was impacted by non-recurring restructuring charges for International, initial OPTA penalties, a book profit following the sale of the Asia-Pacific activities within its subsidiary Spring Global Mail, and impairment and other value adjustments in International.
Total operating income for ‘Mail other’ amounts to €241 million (2009: 255), which relates to non-allocated for an amount of €231 million (2009: 247) and to the unaddressed activities classified as held for sale for an amount of €10 million (2009: 8).
In 2010, non-allocated operating income amounted to €231 million (2009: 247). Included is the operating income of TNT N.V., which includes the difference between the recorded IFRS pension expense for the two Dutch pension plans and the actual cash payments received from its group companies of €189 million (2009: 168). For TNT N.V., the contributions received from the group companies (including the discontinued Express business) offset the defined benefit pension expense. Furthermore, non-allocated includes the profit and loss pooling arrangement which resulted in a benefit of €41 million (2009: 92). Other income in non-allocated of €1 million (2009: -13) relates to shared services and unallocated head office costs (including the remainder of TNT N.V.).
Underlying cash operating income
In addition to the adjustments for the non-recurring items, in the analysis of the underlying performance, management also takes into account a correction for the non-cash pension cost for defined benefit plans, including transitional plans for early retirement. By replacing the IFRS-based defined benefit plan pension cost with the non-IFRS measure of the actual cash contributions for such plans, the resulting earnings measurement more closely monitors the underlying cash earnings basis.
The cash-out for restructuring-related payments in 2010 amounted to €58 million (2009: 46).
The change in pension liabilities of €181 million (2009: 199) is the difference between the underlying pension expense of €57 million (2009: 52) for the defined benefit plans and the actual cash payments of €239 million (2009: 250). The underlying pension expense of €57 million (2009: 52) is derived from the recorded pension income of €42 million (2009: charge 28) corrected for the pension curtailment gain of €74 million (2009: 0) and the €25 million (2009: 24) adjustment related to Express.
Underlying cash operating income 2010
| Year ended at 31 December | Mail in NL | Parcels | International | Mail other | Total | ||||
|---|---|---|---|---|---|---|---|---|---|
| Underlying operating income1 | 359 | 80 | (24) | 165 | 580 | ||||
| Restructuring payments | (53) | (5) | (58) | ||||||
| Changes in pension liabilities | (38) | 1 | – | (144) | (181) | ||||
| Cash operating income | 268 | 81 | (24) | 16 | 341 | ||||
| (In € millions) |
Underlying cash operating income 2009
| Year ended at 31 December | Mail in NL | Parcels | International | Mail other | Total | ||||
|---|---|---|---|---|---|---|---|---|---|
| Underlying operating income | 478 | 60 | (56) | 148 | 630 | ||||
| Restructuring payments | (43) | (3) | (46) | ||||||
| Changes in pension liabilities | (54) | 1 | (146) | (199) | |||||
| Cash operating income | 381 | 61 | (56) | (1) | 385 | ||||
|
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Group financial income and expenses
| Year ended at 31 December | 2010 | variance % | 2009 | ||
|---|---|---|---|---|---|
| Interest and similar income | 14 | (17.6) | 17 | ||
| Interest and similar expenses | (120) | 27.3 | (165) | ||
| Net financial expense | (106) | 28.4 | (148) | ||
| (in € millions, except percentages) |
Interest and similar expenses in 2010 of €120 million mainly relate to interest expense on long-term borrowings of €99 million (2009: 96) and interest on provisions of €5 million (2009: 7).
In accordance with IFRS, interest income and expense on cash pools are reported on a gross basis. From an economic and legal perspective the €1 million (2009: 1) interest income offsets the same amount of interest expense. The amounts are not netted in the income statement because under IFRS such offset needs in practice to be irreversibly exercised from time to time.
Group income taxes
| Year ended at 31 December | 2010 | variance % | 2009 | ||
|---|---|---|---|---|---|
| Current tax expense | 96 | 21.5 | 79 | ||
| Changes in deferred taxes | (5) | (108.8) | 57 | ||
| Total income taxes | 91 | (33.1) | 136 | ||
| (in € millions, except percentages) |
Group income taxes amount to €91 million (2009: 136), a decrease of 33.1% compared to 2009.
Income taxes differ from the amount calculated by applying the Dutch statutory income tax rate to the income before income taxes. In 2010, the effective tax rate was 24.4% (2009: 31.4%), which is lower than the statutory income tax rate of 25.5% in the Netherlands (2009: 25.5%). For further details, see note 23 of the consolidated financial statements of TNT N.V.
The profit for the period from continuing operations was €282 million (2009: 297). The discontinued Express activities contributed €69 million (2009: -8).