Cash flow data

Cash and cash equivalents totalled €633 million at 31 December 2004, compared to €470 million at 31 December 2003. The following table provides a summary of cash flows for the years ended 31 December 2004, 2003 and 2002:

NET CASH PROVIDED BY OPERATING ACTIVITIES

The change in deferred taxes of €82 million was a non-cash item that was primarily attributable to tax deductible pension payments in 2004 and utilisation of tax losses carried forward, partly offset by an adjustment to our net deferred tax position, due to the decrease of the Dutch statutory tax rate from 34.5% in 2004 to 31.5%, 30.5% and 30.0% in respectively 2005, 2006 and 2007 and beyond. This resulted into a reduction of our current income tax payable position included in working capital.

The negative non-cash impact of €3 million from other provisions was primarily the result of releases and withdrawals, which were partly offset by additions.

The changes in pension liabilities of €309 million reflects the total non-cash cost for the defined benefit pension schemes of €41 million, the non-cash costs related to the Personal Seniors Arrangement of €87 million (see also chapter 3 – “The mail division”) and total cash payments of €437 million. Cash contributions to various pension funds, the majority of which for our Dutch employees who fall under our collective labour agreement, totalled €200 million, of these payments €91 million was contributed as prescribed by the minimum funding requirements of the DNB. Our cash payments for pensions, which fall under transitional plan of our Dutch collective labour agreement and are directly paid by TPG (see note 9 to our financial statements), amounted to €95 million. The remaining

The changes in pension liabilities of €221 million reflected the total non-cash cost for the defined benefit pension schemes of €43 million and our total cash contributions of €185 million to various pension funds, the majority of which for our Dutch employees that fell under our collective labour agreement, plus our cash payment of €79 million for pensions that fell under the transitional plan of our Dutch collective labour agreement and that are directly paid by TPG. In total these payments were €131 million higher than in 2002, in particular due to additional contributions totalling €100 million as prescribed in the minimum funding requirements by the Independent Supervisory Authority for Pensions and Insurance.

Working capital increased by €26 million in 2003 versus a decrease of €84 million in 2002. Most of the increase in 2003 related to the accounts receivable position that moved unfavourably by €37 million caused by other accounts receivables for €41 million, partly offset by trade receivables that improved by €4 million (€94 million in 2002). The income tax payable position of €181 million included in current liabilities reflected total income tax payments in 2003 of € 288 million compared to €276 million in 2002. Interest paid in the year amounted to €84 million. Trade payables decreased the current liabilities by €19 million and compared unfavourably with an improvement of €55 million in 2002. The improvements to our accounts receivable and trade payable position in 2002 were realised via considerable improvements of the debtor and creditor days in all our divisions; in 2003 these debtor and creditor days were maintained at the 2002 level.

Other current assets moved unfavourably by €10 million (€74 million in 2002) caused by an increase of prepayments and accrued income.

NET CASH USED IN INVESTING ACTIVITIES Net cash used for acquisitions and disposals

NET CASH USED FOR CAPITAL INVESTMENTS AND DISPOSALS

Our capital expenditure on property, plant and equipment and other intangible assets by division for the three years 2002-2004 was as follows:

In 2004, capital expenditures on property, plant and equipment amounted to €290 million. Of this amount €75 million related to mail, €140 million to express, €69 million to logistics and €6 million to corporate. The capital expenditures on intangible assets of €67 million mainly related to software (€63 million) and the remainder related to prepayments on intangible assets (€4 million).

In mail, the major capital expenditures related mostly to sorting equipment and information technology, needed among other reasons to support the introduction of sequence sorting. In express, capital expenditures included investments in depots, hubs and warehouses, and replacements and operational equipment including automated sorting systems. In logistics the majority of capital expenditures related to warehouses and equipment (e.g. forklifts, racking systems, trailers and trucks) dedicated to the operation of contracts and offices.

Disposals of property plant and equipment in 2004 totalled €32 million in 2004 related to the sale of buildings at Belgische Distributie Dienst (€5 million) and Postkantoren (€2 million) in the mail division and at TNT Express Properties in Germany (€3 million) in the express division and to various smaller disposals of property plant and equipment throughout the company. The disposal of intangible assets of €15 million is a combination of disposed goodwill for €13 million, mainly related to TNT-DFDS Transport Logistics and software for €2 million.

In 2004, non-cash investing activities totalled €11 million, related to additional finance leases.

MAIL
2004
Capital expenditure on property, plant and equipment and other intangible assets by our mail division totalled €98 million in 2004, which was a decrease of 8.4% compared to 2003 (€107 million). This decrease reflected large 2003 spending within European Mail Networks on seal machines (VSP) and a decrease in housing expenditures within Real Estate compared to the previous year.

The main capital expenditures in 2004 related to machinery (€22 million), software (€19 million), hardware (€12 million) and housing (€11 million). The remaining €34 million of capital expenditure related to various smaller projects, most of which

Some of the larger express capital expenditures in 2004 included the investments for warehouse and IT related to our pan-government archiving contract in the UK (€10 million), a new head office for France in Lyon (€10 million), the replacement of trailers and tractor units in the UK (€7 million), depots in Stockholm (€6 million), Birmingham (€3 million) and Enfield (€3 million) and the first investments in the expansion of the Air hub in Liège (€4 million).

2003
Capital expenditure on property plant and equipment and other intangibles assets by our express division totalled €160 million in 2003, which was 10.1% below the level of 2002. Some of the larger capital expenditures in 2003 related to depots, hubs and warehouses (€55 million), depot equipment used in operations including fleet expansions and replacements (€30 million), information technology, communication and other operational equipment including automated sorting systems (€39 million). Of the total €124 million express capital expenditure on property, plant and equipment, €84 million (68%) was spent in Europe.

During 2003, capital expenditures on other intangible assets totalled €36 million and relates primarily to the development of financial systems (e-back office) software and further enhancements to our international shared systems.

LOGISTICS
2004
Capital expenditure on property, plant and equipment and other intangible assets by our logistics division totalled €82 million in 2004, which is comparable to the capital expenditures in 2003 (€83 million). The majority of the expenditures in property, plant and equipment related to new business acquired and to other equipment dedicated to operate logistics contracts throughout the world.

The largest capital expenditures on property plant and equipment and other intangibles in the logistics division were concentrated in the United Kingdom (€18 million), followed by Central and Eastern Europe (€ 12 million), North America (€10 million), Italy (€13 million), Asia (€5 million) and South America (€4 million).

The €18 million invested in the United Kingdom was mainly spent on warehouses and equipment. In Central and Eastern Europe, €6 million was invested in warehouses and equipment to service the DaimlerChrysler contract in Germany. In the remainder of continental Europe, €33 million was invested in warehouses, new depots and automated warehouse racking, information technology and systems security engineering. In Italy, €13m was invested in warehouse equipment, information technology and systems security engineering. In Australia, €5 million was invested in warehouses and equipment for new and existing contracts, and in North America €10 million was spent on warehouses, information technology and equipment for renewals and new contracts. In Asia, €5 million was invested in warehouses and information technology. An amount of €4 million was spent on warehouses and equipment for new and existing contracts in South America.

During 2004, capital expenditures on other intangible assets totalled €13 million, primarily attributable to the acquisition and implementation of a JD Edwards system and warehouse

Net cash from debt financing activities

Changes in short-term financing for 2004 resulted in a cash outflow of €67 million, compared to an outflow of €219 million in 2003. Short-term financing decreased due to the repayment of short-term debt at our Italian logistics business (€19 million), repayment of loans existing within the Wilson group (€20 million) and various other repayments of loans within our express and mail divisions.

In 2004, non-cash financing activities totalled €11 million and related to additional finance leases.

2003
New long-term liabilities, net of repayments, resulted in a cash outflow of €13 million. The acquired long-term liabilities totalling €70 million included €20 million of finance leases, €20 million increase in local bank loans, and €30 million in non-interest bearing liabilities. A total of €83 million in repayments of longterm liabilities related to scheduled repayments on aircraft leases and other leases (€13 million), a bilateral facility (€13 million), other loans (€19 million), €13 million due to foreign currency movement and movements in non-interest-bearing liabilities of €25 million.

Changes in short-term financing resulted in a cash outflow of €219 million. Short-term financing decreased by €72 million due to the scheduled repayment of State Loans, €119 million due to repayment of local Italian short-term facilities and €28 million of other net repayments.

In 2003, non-cash financing activities totalled €26 million, related to additional finance leases.

LIQUIDITY AND CAPITAL RESOURCES

Although cash requirements for capital expenditure do fluctuate from year to year, depending on the extent of strategic capital

current portion of long-term finance leases and €20 million of numerous other liabilities at fixed and variable rates.

At 31 December 2004, long-term debt consisted of a €1 billion Eurobond with a coupon of 5.125% issued in December 2001, a €186 million 5-year plus one day syndicated facility bearing an interest rate of 3-month Canadian LIBOR plus a margin of 0.325% signed in May 2001, a bilateral loan agreement amounting to €129 million which has been revised from an amortising loan maturing in year 2020 with fixed interest rate of 5.85% into a bullet loan maturing in 2006 with a fixed interest of 2.54%, €86 million of finance lease obligations and €39 million of other longterm liabilities at fixed and variable rates.

At 31 December 2004, our total cash position amounted to €633 million, an increase of €163 million compared to yearend 2003. Included in the €633 million of total cash was €171 million of restricted cash (2003: €167 million) held mainly by consolidated joint ventures and insurance captives. The cash held in consolidated joint ventures is considered to be restricted by virtue of the fact that we require the agreement of our joint venture partners before we are able to access this cash. Our total cash position was primarily denominated in euro.

Guarantees

CONTINGENCIES

The total commitments as at 31 December 2004 relating to capital expenditure were €33 million (2003: €58 million).

At 31 December 2004 we had unconditional purchase commitments of €84 million (2003: €100 million), which were primarily related to various service and maintenance contracts. Furthermore, at 31 December 2004, we had an unconditional commitment to repurchase 13.1 million ordinary shares for the State of the Netherlands. These shares were delivered on 5 January 2005, for which a total purchase price was paid amounting to €259 million. See note 26 to our consolidated financial statements.

A review of our tax position of certain of our subsidiaries relating to prior years has identified a limited number of items where our interpretation of relevant tax laws and regulations may be open to challenge. If these items were successfully challenged, it could result in a total liability between 0 and €400 million. Following a detailed review of the issues involved and legal advice from outside tax counsel, we currently believe that we have no liability in this regard.

In February and March 2004, our audit committee, on behalf of our Supervisory Board, conducted an independent investigation regarding representations made to the UK Inland Revenue and to our external auditors, PricewaterhouseCoopers, with respect to certain UK tax matters originally arising in the late 1990s relating to one of our UK subsidiaries. In addition to this investigation, our audit committee, with the assistance of independent tax advisors, conducted a review of other UK tax matters that arose from the same period. The investigations conducted by our audit committee, with the assistance of independent legal counsel, concluded that not all relevant details in connection with these tax matters were adequately disclosed to the UK Inland Revenue and PricewaterhouseCoopers.

In August 2004, we submitted a report to the UK Inland Revenue in relation to these UK tax issues pursuant to a procedure under UK law designed to ensure full disclosure of all relevant information to the UK Inland Revenue. We will be providing an addendum to our original report with additional information, and are continuing discussions with the UK Inland Revenue in connection with their related comprehensive investigation. The outcome of the UK Inland Revenue’s investigation is not certain, and we do not expect these matters with the UK Inland Revenue will be resolved before 2006.

The UK Inland Revenue could assess further taxes, penalties and interest that would exceed the amounts we have accrued in our financial statements.

For a further description of these contingencies see note 14 to our consolidated financial statements.

Our financial statements are prepared in accordance with generally accepted accounting principles in the Netherlands (Dutch GAAP), which differ in certain respects from generally accepted accounting principles in the United States (US GAAP). In the case that our Dutch GAAP compliant accounting policies do not correspond with the required US GAAP accounting treatment, and this is estimated to have a significant effect on our consolidated net income and shareholders’ equity, we have highlighted these differences in the discussion below.

Business combinations and impairment of intangible assets and goodwill

Under both Dutch and US GAAP, all of our business combinations are accounted for as purchases. The cost of an acquired company is assigned to the tangible and intangible assets purchased and the liabilities assumed on the basis of their fair values at the date of acquisition. The determination of fair values of assets and liabilities acquired requires us to make estimates and use valuation techniques when market value is not readily available. Under US GAAP, we have identified certain intangible assets that were not separately identified under Dutch GAAP.

The above sensitivity analysis has been provided only for goodwill amortised over 40 years because a revision of the useful life of this particular goodwill would have the most significant impact on our financial statements. As this amortisation charge is not tax deductible, the above additional charges would impact net income directly. Charges associated with goodwill amortised over a period of up to 20 years would be similarly affected by determinations about the estimate of its useful life.

Under Dutch GAAP, goodwill is assessed for impairment if changes in circumstances indicate that an impairment may have occurred or on an annual basis if the estimated useful lives of the goodwill exceeds 20 years. Under US GAAP, we evaluate our goodwill for impairment at least annually and more frequently if specific events indicate that an impairment in value may have occurred.

Our goodwill impairment tests include judgements regarding when to perform a test, and assumptions regarding the level of testing, future cash flow and discount rates.

Judgement is required to determine whether there has been a change in circumstances such that goodwill may be impaired. If we do not identify changes in circumstances on a timely basis, the timing or amount of impairment losses, may be impacted. The level we identify for impairment testing and the criteria we use to determine which groups should be aggregated also require judgement. Higher or lower testing level could affect whether

Under both Dutch and US GAAP, we review our tangible and intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable (a “triggering event”). The review for recoverability requires us to estimate the future cash flows expected to result from the use of the asset and its eventual disposition. The determination of whether a triggering event has occurred as well as the development of the assumptions used to estimate future cash flows and determine fair value, requires the use of judgement, as mentioned above.

Accounting for pensions

We operate a number of pension plans around the world. Most of our non-Dutch pension plans are defined contribution plans. For our non-Dutch employees we also operate a limited number of defined benefit plans. The liabilities for these employees are separately covered by private insurers and foreign pension funds.

Two retirement plans are applicable to most Dutch employees. These two plans are the most significant pension plans of TPG: a pension plan and a conditional early retirement arrangement.

As required 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 the Nederlandsche Bank (DNB) into which the Independent Supervisory Authority for Pensions and Insurance has merged.

The pension fund runs an actively managed investment portfolio. The pension funds uses asset and liability management studies that generate future scenarios to determine its optimal asset mix. During 2004, the dynamic weight of equity investments increased to 44.9%, the dynamic weight of fixed interest investments decreased to 46.5%, and the weight of real estate investments (including international) went down to 8.6%.

The assets of our major plan cover approximately 93% of our total pension assets and the liabilities described in the section above cover approximately 95% of our total pension liabilities. The return on plan assets totalled 8.8% in 2004 (2003: 9.1%).

We have deducted an amount of €454 million from our equity (net of tax). The accrued pension costs have increased with the minimum liability of €654 million and we accounted for a deferred tax asset amounting to €200 million. No intangible assets have been recognised. Please note that after the

For further discussion see note 9 to our consolidated financial statements.

INCOME TA XES

In valuing our deferred tax assets, we provided valuation allowances on future tax benefits of €162 million, €138 million, and €145 million at the end of 2004, 2003, and 2002, respectively.

For further discussion of income taxes see note 21 to our consolidated financial statements.

RESTRUCTURING

with a remaining balance of €130 million at the moment of the termination of the contract. In addition, US GAAP net income was impacted in 2004 by amortisation of other long-lived intangible assets, the realisation of gains on real estate sales (recognised under Dutch GAAP in prior years) and a positive tax effect on the reconciling items.

Our shareholders’ equity determined in accordance with US GAAP was €2,622 million at 31 December 2004 (€3,146 million at 31 December 2003), which was €143 million lower (€177

In 2004 the Dutch GAAP operating income in the mail division was higher than under US GAAP. This was caused by the fact that the reversal of the goodwill amortisation was more than offset by the unwindig of an insurance contract. The agreement with an insurance company related to settling future wage guarantees that was entered into in 2001, was terminated in December 2004 following an unfavourable court decision with regard to the timing of the deductibility of the consideration for tax purposes.

As per 23 December 2004 there is no reconciling item anymore. Within express and logistics the difference between Dutch

The difference in 2003 between Dutch GAAP and US GAAP operating income on a divisional basis was primarily the result of reversing Dutch GAAP goodwill amortisation and impairments and recognising US GAAP goodwill impairments, revaluing our financial derivatives for US GAAP purposes, adjusting for timing

The following table indicates our 2002 operating income determined in accordance with Dutch GAAP, compared to that determined in accordance with US GAAP:

The difference in 2002 between Dutch GAAP and US GAAP operating income on a divisional basis was primarily the result of reversing goodwill amortisation, revaluing our financial derivatives for US GAAP purposes, adjusting for timing differences related to settling future wage guarantees, deferring gains on certain real estate sales and expensing long-term contract incentives that are considered prepaid expenses under Dutch GAAP.

Transition to International Financial Reporting Standards

TPG currently prepares its financial statements under Dutch GAAP. As from 2005 onwards we have to report our consolidated financial information in accordance with International Financial Reporting Standards (IFRS). This change applies to all financial reporting for accounting periods beginning on or after 1 January 2005 and, consequently, our first IFRS results will be our interim results for Q1 2005. The financial statements for the year ending 31 December 2005 will include comparative amounts that have been restated for 2004 to comply with IFRS standards that will be in force at the end of 2005.

We expect to have a pro forma IFRS restated 2004 balance sheet and profit and loss account presented on 27 April 2005, before our Q1 2005 results.

During 2004 we have further investigated the key differences between Dutch GAAP and IFRS and have revised our accounting manual to be able to consistently apply IFRS within the group. We also finalised the review of our reporting routines and internal control processes in order to be able to compile the data required for IFRS based reporting. The main changes in our accounting policies affecting our accounting principles relating to the determination of our equity and our results relate to Goodwill Amortisation (IFRS 3), Employee Benefits (IAS 19) and Share Based Payment (IFRS 2). IAS 32/39 relating to financial instruments will only be applied as per 1 January 2005.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The following analyses provide quantitative information regarding our exposure to foreign currency exchange risk, interest rate risk and commodity price risk. There are certain limitations inherent in the analyses presented, primarily due to the assumption that exchange rates change in a parallel fashion and that interest rates change instantaneously. In addition, the analyses are unable to reflect the complex market reactions that normally would arise from the market shifts assumed.

For a discussion of our accounting policies for derivative instruments and further disclosures, see chapter 12 – “Financial statements and other information”.

We use derivative financial instruments solely for the purpose of hedging underlying exposures. We enter into contracts related to derivative financial instruments for periods commensurate with our underlying exposures and do not take positions independent of these exposures. None of these financial instruments are leveraged or used for trading purposes or to take speculative positions.

FOREIGN CURRENCY RISK

Hedging of foreign currency cash flows includes transactional hedging of firm commitments and anticipated cash flows. We use an internal clearing system to allocate the group operational expenses and management charges to our companies. The balances arising from the clearing system are included in the intercompany account balance with our companies. Additionally, this account is used to provide cash management and internal funding. The net exposures on these accounts, predominantly denominated in the local currency of each of our companies are hedged.

The main currencies of our external hedges are the Australian dollar, British pound and United States dollar.

Significant acquisitions are usually funded in the currency of the underlying assets.

On 5 December 2001, we entered into a USD-EUR cross currency interest rate swap that provided a USD 435 million short position to hedge an inter-company loan of USD 256 million and US dollar net investments for the remainder. On 13 December 2004 this transaction was replaced by a USD 256

COMMODITY RISK

Although we are of the opinion that increases in price risks should be able to be passed on to our customers, we may use a combination of options, swaps and futures contracts to provide some protection against rising fuel and energy prices.

At 31 December 2004, we had no outstanding fuel contracts but may enter into such contracts in the future.

CREDIT RISK