avatar PostNL N.V. Finance, Insurance, And Real Estate
  • Location: ZUID-HOLLAND 
  • Founded: 1997-12-29
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    Annual Report 2011 “The essential link in the market for sending and receiving”

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    PostNL brand vision In a world where digital applications are playing an network in delivery and retail. With smart combina- ever greater role in our daily lives, there are more and tions with digital applications we can offer valuable more opportunities to send and receive messages. solutions to our customers. These opportunities are unlimited, but often still unknown. That calls for an inventive and reliable That is why PostNL is an essential link in the market organisation, that knows the way between sender for sending and receiving. We help our customers to and receiver like no other. make use of all opportunities in post, parcels and e-commerce. That organisation is PostNL. Because we know that way, with the highest quality and most intricate Introduction and financial As required by EU regulation, as of 2005 the consoli- and corporate responsibility highlights dated financial statements of PostNL N.V. have been This is PostNL’s annual report for the financial year prepared in accordance with International Financial ended 31 December 2011, prepared in accordance Reporting Standards (IFRS) as adopted by the EU. with Dutch regulations. In 2011, PostNL has changed the accounting frame- PostNL N.V. is a public limited liability company with work in its corporate financial statements from Dutch its registered seat and head office in ’s-Gravenhage, GAAP to IFRS-EU. the Netherlands. Following the approval of the PricewaterhouseCoopers Accountants N.V. has been shareholders of TNT N.V. at the Extraordinary General appointed as the external independent auditor of Meeting of Shareholders on 25 May 2011, the name PostNL’s financial statements. of TNT N.V. has been changed to PostNL N.V. on PostNL has engaged PricewaterhouseCoopers 31 May 2011 and the demerger has become effective Accountants N.V. to provide reasonable assurance on as per 31 May 2011. PostNL N.V. is listed on the NYSE its corporate responsibility statements. This assurance Euronext in Amsterdam. work is performed in accordance with the Assurance Unless otherwise specified or the context so requires, Standard 3410N ‘Assurance Engagements Relating to ‘PostNL’, the ‘company’, the ‘Group’, ‘it’ and ‘its’ refer Sustainability Reports’ as drawn up by the professional to PostNL N.V. and all its group companies as defined body of Dutch Accountants (Royal NIVRA). in article 24b, book 2 of the Dutch Civil Code. With regard to the GRI Application Levels System, PostNL is domiciled in the Netherlands, which is one PostNL was assessed at the GRI A+ level. A detailed of the Member States of the European Union (EU) overview of the G3 core indicators is provided in that has adopted the euro as its currency. Accordingly, Annex 1. For a full description of the scope of the PostNL has adopted the euro as its reporting currency. reported CR data and the assurance obtained please In this annual report the euro is also referred to as ‘€’. refer to chapter 20.

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    At a glance Revenue per segment Total operating revenues 1 (in € millions) Mail in NL Parcels International Mail other (in € millions) 4,293 4,297 285 4,000 345 +0.1% 3,000 1,294 1,467 2,000 2011 2,429 2010 2,538 1,000 0 564 2010 2011 608 1 Including adjustments for intercompany revenues. Employees per segment Operating income (in € millions) 1,202 1,875 600 5,777 15,803 2,907 480 450 417 –13.1% 300 2011 3,068 2010 150 55,622 56,409 0 2010 2011 Underlying operating income Underlying operating income 1 (in € millions) (in € millions) 600 580 92 145 450 426 –26.6% 4 300 2011 – 24 2010 150 88 80 0 242 379 2010 2011 1 Operating income minus non-recurring items. Underlying cash operating income Underlying cash operating income 1 (in € millions) (in € millions) 400 – 31 – 24 –4 341 320 5 81 240 220 –35.5% 160 2011 2010 80 92 0 154 288 2010 2011 1 Underlying operating income minus changes for pensions and provisions.

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    Volumes Financial performance against outlook (in € millions, except percentages) Underlying revenues 2011 Variance in % 2010 (in € millions, except percentages) Mail in NL 3,777 –7.2 4,070 Performance Outlook • Single items 870 –7.5 941 2011 2011 2010 • Bulk mail 2,907 –7.1 3,129 Mail in NL – 4.3% – mid single 2,538 Parcels 106 6.0 100 Parcels 7.8% + mid single 564 International 13.4% + mid double 1,294 Mail other – 103 Debt cash outflows (including interest) PostNL – 0.3% stable 4,293 (in € millions) < 1 yr 1 – 3 yr 3 – 5 yr > 5 yr Euro bonds 90 181 565 1,294 Underlying cash operating income/margin Other loans 31 7 (in percentages) Financial leases 2 2 Performance Outlook Short-term 2011 2011 2010 bank debt 31 Mail in NL 6.3% 3 – 5% 11.3% Total 154 190 565 1,294 Parcels 15.1% 13 – 15% 14.4% International 0.3% 0 – 1% – 1.9% PostNL 5.1% 2 – 4% 7.9% Corporate responsibility performance 2011 20101 2010 CO2 emissions (in ktonnes) 74 77 83 CO2 efficiency index 64.5 70.4 70.4 Fatal accidents 3 1 1 Absenteeism 5.4% 5.4% 5.6% Net profit from continued operations 1 Customer satisfaction 2 (in € millions) (overall Mail in NL) 89% 91% 91% 300 282 Employee engagement 56% 55% 54% 240 1 213 Restated to reflect the operational scope 2011. 2 180 See for scope chapter 19, note 15. 120 60 0 2010 2011 1 Profit for equity holders of the parents adjusted for discontinued operations and impairment TNT Express stake. Dividend per share Interim Second interim 2010 (in € cents) Final 100 85 80 73 55 71 60 47 37 57 53 29 40 35 40.7 19.3 34 20 30 28 26 21.4 18 0 2006 2007 2008 2009 2010 2011

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    Annual Report 2011 From the CEO Remuneration 1 From the CEO 7 14 Remuneration 126 Report of the Board of Management Report of the Supervisory Board 2 Company profile, company strategy and 8 15 Report of the Supervisory Board 130 organisation 3 Demerger, pensions, equity and funding position 11 Governance, regulation and investor relations 4 PostNL’s performance and outlook 2012 14 16 Corporate governance 138 5 Mail in the Netherlands 21 17 Regulatory environment 147 6 Parcels 25 18 Financial policy, investor relations, shareholders' 151 7 International 28 information 8 Mail Other 32 9 Employees 33 Corporate responsibility 10 Corporate responsibility, strategy and performance 37 19 Corporate responsibility performance 154 summary 20 Corporate responsibility reporting and assurance 165 11 Risks 40 12 Board of Management compliance statement 43 Annex Annex 1: Global Compact and GRI G3.1 index 168 Financial statements Annex 2: Data clarification table 173 13 Financial statements 46 Annex 3: Glossary and definitions 174 Cautionary note with regard to “forward-looking statements” Some statements in this annual report are “forward-looking statements”. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that may occur in the future. These forward-looking statements involve known and unknown risks, uncertainties and other factors that are outside of PostNL’s control and impossible to predict and may cause actual results to differ materially from any future results expressed or implied. These forward-looking statements are based on current expectations, estimates, forecasts, analyses and projections about the industries in which PostNL operates and PostNL management’s beliefs and assumptions about future events. You are cautioned not to put undue reliance on these forward-looking statements, which only speak as of the date of this annual report and are neither predictions nor guarantees of future events or circumstances. PostNL does not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date of this annual report or to reflect the occurrence of unanticipated events, except as may be required under applicable securities laws. This annual report can also be viewed on PostNL’s corporate website: postnl.com. Any information on the website other than the contents of this annual report does not form part of PostNL’s annual report. Investing in PostNL’s securities involves risk. Carefully consider the principal key risks set out in chapter 11 of this annual report.

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    From the CEO | Chapter 1 1 From the CEO improvements in our results in International show we are on the right track. I am very proud of the performance of the company and its employees in 2011. We saw improved results compared with our outlook in all our business lines, higher quality of service and were able to maintain customer satisfaction levels. As regards sustainability, PostNL launched two initiatives in 2011. We introduced Folders.nl – a digital version of the 12 billion unaddressed retail-related brochures delivered to Dutch households every year, and entered into a partnership with the paper and package industry relating to the use of environmentally- friendly paper. Looking ahead, I would like to focus on pensions, value creation in our Express stake, and the need to strengthen our portfolio. These, in addition to our business results, are important elements for future dividends. The decline in the value of the stake in TNT Express, together with the long-term interest rate development for pensions, has caused Dear stakeholders, PostNL to withhold cash payment of the dividend for the time being and closely review all investments. On the other hand the recent This annual report has no theme, but if it did, ‘challenges ahead’ developments on a possible take over of Express could result in new would be appropriate. opportunities, not only from a dividend perspective, but also in the strengthening of our portfolio. New growth areas are important to Although our PostNL brand was only launched in May 2011, the compensate for the decline in Mail in the Netherlands: a balanced origins of our company date back 200 years. The last decade can portfolio is the best guarantee of continuity. In this respect we also truly be characterised as turbulent: the impact of digitisation on believe that reshaping the pension plan to a lower cost level volumes; the glass half full/glass half empty approach of European contributes to the long term continuity of the company and is governments to liberalisation of their mail markets; the continuous therefore in the interests of all employees. For these reasons, reorganisations of Mail in the Netherlands, including the related PostNL has started taking action to explore ways to mitigate its discussions with the unions; and, more recently, the concerns pension issues. facing PostNL regarding pension costs and the development of our retained stake in TNT Express. The future will remain challenging, but with all the actions in place, we should soon be back on track towards achieving our strategic On the other hand, the operational execution of our businesses is goals. on track. Macroeconomic developments aside, this is promising for the future, although we have to realise that the company has never Kind regards, before faced so many challenges in the reorganisation of its operational processes. Harry Koorstra The rollout of the new delivery model of Mail in the Netherlands is necessary to remain cost-competitive in the market in the future. However, these are complex change programmes that will influence the work of thousands of our employees. In this respect, I like to express my compliments to our workforce, keeping the machine running in an environment full of uncertainty. During the 2012-2013 implementation period, this could require some considerations from our customers. Parcels had a successful year, both in terms of its results and in terms of its implementation of the new parcel-sorting infrastructure. As regards International, we have to continue to fight in several countries for a level playing field with the incumbents. The PostNL Annual Report 2011 7

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    Report of the Board of Management | Chapter 2 2 Company profile, company strategy and organisation PostNL provides mail, parcels and supporting services, both physical and digital, in its home market of the Netherlands, as well as the United Kingdom, Germany, Italy and Belgium. PostNL collects, transports, sorts and delivers mail, small packages and standard parcels by combining depots, trucks, sorting centres, delivery and online capabilities. Company profile In 2011, TNT Post was rebranded as PostNL. The rebranding means that the name TNT Post will gradually disappear in the Netherlands PostNL is organised into three segments: Mail in the Netherlands, and will be fully replaced by 2013. The rebranding outside the Parcels and International. Netherlands will be carried out at a later date, ultimately in 2014. In the countries outside the Netherlands, the name TNT Post will • Mail in the Netherlands is responsible for mail services in the continue to be used until the rebranding has been completed. Netherlands, including the provision of the Universal Postal Service for mail. Further, this segment is responsible for a range of mail-related services, including over 2,600 retail outlets, Company strategy making PostNL the biggest retail chain in the Netherlands. Also, PostNL's strategy is based on a balanced portfolio of businesses this segment provides document management, direct (see graph below). Where Mail in the Netherlands operates in a marketing and fulfilment services. declining market, the other segments Parcels and International • Parcels provides parcel services in the Netherlands and Belgium operate in growth markets. The three segments that comprise for both domestic and cross-border parcel distribution, and PostNL fit well together and reinforce one another. Its joint market related value-added services. Further, it provides the Universal approach extends to targeting customers where appropriate, as Postal Service for parcels. well as operational synergies, product development and cross • International operates in the postal markets of the United border knowledge and expertise sharing. Key to the strategy is an Kingdom, Germany and Italy, with a focus on domestic aim to further strengthen the collaboration of the segments, create addressed mail services. International also manages cross- sales strategies between all three segments, and find network border mail services as well as international business mail synergies where appropriate within the countries. services, through, among others, Spring Global Mail, a joint venture with Royal Mail. In the Netherlands, PostNL is responsible for the provision of the Universal Postal Service as laid down in the Postal Act of 2009 (see chapter 17). 8 PostNL Annual Report 2011

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    Report of the Board of Management | Chapter 2 | Company profile, company strategy and organisation As the rise of the internet continues to reduce addressed mail mail volumes continue to decline. Essential steps taken in 2011 are volumes, PostNL is in a transition from a traditional postal company the introduction of an innovative, more flexible Basic product, which into a flexible organisation that moves with the fast-changing offers business customers the choice of day-certain delivery of non market and can exploit online opportunities. That is why PostNL time-sensitive business mail three days a week, and laying the develops value-added services and solutions that facilitate the foundations for a new operational model based on flexible, part- entire value chain for its customers, while generating additional mail time mail deliverers. To be able to benefit from the technology shift, and parcels business. Two major value chains in which mail plays a Mail in the Netherlands offers value-added services in its customers' key role include the e-commerce and communication value chains. value chain. This includes data and document management, direct PostNL is well positioned to use its expertise to provide every link marketing, fulfilment services and other innovative services. (See in the chain from sending to receiving, both offline and online: Chapter 5) scanning, print & mail, post, parcels, webshops, invoicing, response and customer service. All these services are offered not only on a Parcels stand-alone basis but also as part of an integrated solution for e- Growing the parcels business relies on maintaining the market tailers. share in the growing business-to-consumer (B2C) parcels market, driven by the growth of e-commerce, while strengthening the position of PostNL in the business-to-business (B2B) parcel and associated markets. In order to cope with the growing market, E-commerce PostNL is in the process of a complete redesign of its logistical Retail Marketing Webshop Payment Fulfilment Delivery Customer service operations. This, together with IT driven innovations, will help PostNL retain its strong B2C position. Furthermore, the Parcels segment offers tailored and value-added solutions for customers Partners Partners Parcels Parcels such as secure delivery, two-man delivery, payment-on-delivery service and fulfilment services. In addition to this, specialised services, such as those targeting irreplaceable or exclusive goods, are being developed. In order to expand in B2B, a shop logistics Partners Webshops Business Development model was designed, which includes supplying shops in the most efficient way. (See Chapter 6) KOWIN e-commerce International PostNL aims to generate profitable growth in its international E-commerce integrator business, primarily in the three large European markets where liberalisation is most advanced: the United Kingdom, Germany and Italy. In the United Kingdom and Italy, this business is growing profitably, whereas in Germany, it is on the path to break-even in Direct mail 2013. PostNL uses a general approach of learning and knowledge sharing, while taking into account the country-specific differences Campaign strategy Target group selection Choice of media Creation & design Production & mailing Responce processing Customer Service Result analysis in its customer approach. In Germany and Italy, PostNL operates its own last mile delivery; in the United Kingdom, the business model Customer Customer Customer relies on downstream access. (See Chapter 7) insight information Online Contact Services & solutions Shore PostNL provides services and solutions, combining the strengths of all three segments to support customers in their value chains, with DM Partners DM Partners a strong focus on the communication value chain where it has traditionally a strong position, and the e-commerce value chain that is strongly affecting the mail and parcel market. PostNL's services include marketing and communication services, fulfilment solutions and e-commerce related solutions. The strategy of PostNL relies on the following driving forces: One of the main drivers of the further development of these services • Maintaining the profitability of the mail business in the in PostNL is the strong growth of e-commerce. PostNL is innovating Netherlands to capture e-commerce opportunities, combining its network and • Growing the standard parcels business delivery expertise with its digital strengths in a way that benefits all • Creating profitable growth in the international business business areas. For example, the Parcels segment benefits from the • Support growth in all segments through services & solutions, growing number of goods ordered online. Concurrently, physical including e-commerce mail − in the form of direct marketing or printed advertising material − is a key catalyst for e-commerce. Mail in the Netherlands Maintaining the profitability of the mail business in the Netherlands Starting with the direct mail item to initiate an online purchase, is the key strategic goal for Mail in the Netherlands. This is a followed by the order pickup in fulfilment centers and delivery of challenge in a market that is fully liberalised and where addressed the item, and completing the value chain with back-office call centre support and billing: all elements are combined in an integrated PostNL Annual Report 2011 9

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    Report of the Board of Management | Chapter 2 | Company profile, company strategy and organisation portfolio. As such, the strategy of PostNL is to provide the link between the physical and online worlds. Board of Management profile Board of Management PostNL N.V. The Board of Management is responsible for establishing and executing PostNL’s strategy and consists of four members: Mr H.M. Koorstra, CEO and also responsible for the Mail in the Netherlands segment; Mr J.P.P. Bos, CFO; Ms H.W.P.M.A. Verhagen, responsible for the Parcels and International segments; and Mr G.T.C.A. Aben, managing director Group Human Resources. From left to right: Harry Koorstra, Herna Verhagen, Jan Bos and Gérard Aben 10 PostNL Annual Report 2011

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    Report of the Board of Management | Chapter 3 3 Demerger, pensions, equity and funding position The year 2011 was impacted by non-core items that had an effect on the equity and funding position of PostNL. General to be used to reduce the debt of PostNL and/or to return to shareholders. The business and financial performance of the group will be explained in detail in chapter 4. The business and financial performance of the segments Mail in the Netherlands, Parcels and Demerger process International are detailed in the respective chapters 5, 6 and 7. This As of January 2011, the internal legal and organisational separation chapter will address the demerger, the impact from the value between Mail and Express was completed. At the Annual General development of the retained stake in TNT Express and pensions, Meeting of Shareholders / Extraordinary General Meeting of and the development of the equity and funding position. Shareholders on 25 May 2011, the demerger proposal was adopted with 99.76% of the votes. As from 26 May 2011, both TNT N.V. (later renamed PostNL N.V.) and TNT Express N.V. traded as two stand- In 2011, PostNL’s equity and funding position were significantly alone companies. PostNL N.V. is listed on NYSE Euronext in impacted by the demerger of the Express activities and the negative Amsterdam and the shares are traded under the symbol “PNL”. development of the value of the retained stake in TNT Express. The outlook for the European economy has worsened and resulted in historically low interest rates and a negative performance of the At 31 May 2011, the legal demerger of TNT N.V. became effective equity markets. A consequence was a shortfall of the coverage ratio and on 1 June 2011 the separation was completed. The separation of the Dutch pension funds of PostNL below the minimum required was executed in two steps. levels. This shortfall triggered additional funding requirements, which could have a negative impact on the funding position of First, on 30 May 2011, the notarial deed of demerger was executed, PostNL in the near future. Also, the impact of the revised IAS19, following which per 31 May 2011, among others, 70.1% of the which is expected to be effective as from 1 January 2013, will be shares in TNT Express Holdco B.V., the company that held the significant. Express activities, and 100% of the shares in TNT Express N.V. were demerged from TNT N.V. to TNT Express N.V. Demerger As part of the legal demerger, TNT Express N.V. cancelled its own In 2010, the Board of Management of TNT concluded that it was in shares received as a result of the demerger, and allotted (new) the best interests of the company, its shareholders and other ordinary shares to the existing shareholders of TNT N.V., whereby stakeholders to separate TNT’s divisions into two separate such shareholders received one ordinary share in the newly listed companies: Mail and Express. Following the announcement of the TNT Express N.V. for each one ordinary TNT N.V. share held. intended separation of Mail and Express on 2 August 2010, TNT presented a detailed plan including the proposed demerger structure on 2 December 2010: Additionally, a deed of amendment of the Articles of Association of TNT N.V. was executed, following which per 31 May 2011 the name of TNT N.V. was changed into PostNL N.V. Demerger TNT N.V. Second, on 31 May 2011, the notarial deed of merger was executed, following which per 1 June 2011 TNT Express Holdco B.V. was merged into TNT Express N.V., whereby TNT Express Holdco B.V. Mail Express ceased to exist. As part of the legal merger, TNT Express N.V. allotted such number of shares to PostNL N.V. for it to hold 29.9% of the TNT N.V. Mail Express ordinary shares in TNT Express N.V. [29.9% Express] The retained stake in TNT Express held by PostNL is governed by a • Mail in NL • Europe and MEA relationship agreement that provides for the terms and conditions • Parcels NL/Belgium • ASPAC • International • Americas for selling (part of) the retained stake in TNT Express (including a • Real estate • Other Networks • Dutch pension plans • TNT Brand lock-up period) and includes orderly market arrangements relating to voting rights for PostNL concerning the retained stake in TNT Express. As of 1 December 2011, the lock-up period for selling (part The objective of the 29.9% retained minority shareholding in TNT of) the retained stake in TNT Express came to an end. The Express was to secure positive distributable equity at the time of relationship agreement can be found on postnl.com. demerger. The subsequent value step-up after demerger was intended to contribute to offset the assumed future potential With regard to pensions, it was agreed that both companies would equity write-down as a result of the revision of IAS19. Sell-down of have separate agreements with the pension funds. the minority shareholding was anticipated over time, with proceeds PostNL Annual Report 2011 11

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    Report of the Board of Management | Chapter 3 | Demerger, pensions, equity and funding position Following the demerger, the governance and organisational As the coverage ratios of PostNL's pension funds are below the structure as applicable within TNT was incorporated in the PostNL minimum requirements, PostNL has been invoiced top-up organisation to secure the requirements of a stand-alone listed payments of around €39 million. Further conditional invoices for company. This consisted, among others, of an update of group top-up payments of €21 million may become due in the second policies and review of the risk management & internal control quarter of 2012 if the coverage ratios are below the minimum framework. Following the internal organisational separation of Mail required level at the end of the first quarter of 2012. PostNL disputes and Express, 62 people from the head office of TNT remained with the necessity of these payments. In a formal letter to the board of PostNL (effected per 1 January 2011). This transition was the pension fund, PostNL has disputed the necessity of these implemented smoothly and the company has adapted itself to the payments. new structure. Due to the demerger of the Express activities, the consolidated equity of PostNL was reduced by €1,564 million as per PostNL has also invited the boards of the pension funds to discuss 1 June 2011. This consists of the demerger gain of €2,086 million the top-up payments. These top-up payments are not necessary excluding the recycling of the currency translation adjustment and according to PostNL and are not sustainable with regard to the hedges of €146 million for a total amount of €2,232 million offset current and future financial position of PostNL. Also, as current by the impact of the demerger of 70.1% of the Express activities for pension arrangements at PostNL are not sustainable, the pension an amount of €3,796 million. Refer to note 3 and 10 of the arrangements will be part of the negotiations with the unions. consolidated financial statements. Equity position Retained stake in TNT Express The decline of the book value of the retained stake in TNT Express The initial value of PostNL’s retained stake in TNT Express in the had an impact on PostNL's consolidated equity position. Total consolidated financial statements as per 1 June 2011 amounted to equity attributable to equity holders of the parent decreased from €1,583 million, based on a share price of €9.77. Since then, the share €2,424 million on 1 January 2011 to €400 million as per 31 December price of TNT Express has declined by 40.9% to €5.77 per share at 2011. This decrease is mainly due to the net impact of the demerger the end of 2011. In 2011, PostNL had to record an impairment and the impairment of €636 million on the retained stake in TNT charge of €636 million to reduce the value of the retained stake in Express. TNT Express to the lower market value. As at 31 December 2011, the book value of the retained stake in TNT Express was €936 million. The impact of IAS 19 revised on the 2013 financial position will be Please refer to note 4 of the consolidated financial statements. significant. As at 31 December 2011, the net pension asset amounted to €998 million. This includes net actuarial losses for an Pensions amount of €922 million. If these net actuarial losses as per the end PostNL has arrangements with two pension funds. At the end of of 2011 had been recognised immediately, this would have 2011, Stichting Pensioenfonds PostNL, the main pension fund of impacted equity of PostNL negatively by a net amount of around PostNL, published a coverage ratio of 99.8% (2010: 107.4%), below €692 million, based on current parameters which are dependent the minimum required level of 104.1%. The decrease compared to on interest rate movements. 2010 is due to the decrease in the long term interest rate partly offset by the fund's overall investment return. The coverage ratio Funding position of 99.8% includes the receivable for the first top-up payment, PostNL’s financial position deteriorated during 2011. The main invoiced to PostNL. factors that had a negative effect on the financial standing were the decline in the market value of the retained stake in TNT Express, Development consolidated equity 2011 (in € million) 3,000 2,700 73 238 2,400 2,424 80 2,100 1,800 1,500 1,200 900 1,564 600 400 300 636 61 6 0 Equity FY Net result Cash Impact Net Other comp. Other Equity PostNL Net Express dividend demerger impair- income PostNL 1 Jan result Jan-May Express ment Express 31 Dec 2011 PostNL Express 2011 stake 12 PostNL Annual Report 2011

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    Report of the Board of Management | Chapter 3 | Demerger, pensions, equity and funding position the expected future increase in regular pension contributions and Actions to strengthen equity and funding position the fall in coverage ratios of both pension funds below the minimum Against the current background, PostNL has reviewed its equity and required level. funding position for 2011 and beyond. Based on this review, PostNL has taken the following actions: S&P downgraded PostNL to a BBB ‘stable’ rating on 1 June 2011. • PostNL will pay out dividend in cash if and when consolidated Main reasons for the downgrade relate to the smaller base of equity will be positive and the company will have certainty of a earnings and cash flows of PostNL to fund its debt and debt-like BBB+/Baa1 credit rating. obligations, leading to a weaker financial risk profile. S&P excludes • PostNL changed the accounting framework of its corporate the retained stake in TNT Express from the debt and debt-like financial statements from Dutch GAAP to EU-IFRS. The change calculations. S&P mentioned that a rating upgrade to BBB+ could included a revaluation to fair value for of the Mail investments occur if PostNL would effectively reduce debt with the proceeds (being the deemed costs going forward), which provides from disposals of the retained stake in TNT Express. additional information into the equity position of PostNL. • PostNL has invited the pension funds to discuss the necessity of PostNL is rated Baa1 ‘negative’ by Moody’s. This rating reflects the top-up payments. Also, a change in the pension Moody’s view that PostNL will not be strongly positioned over the arrangements will be part of the negotiations with the unions short to medium term after the demerger while awaiting financial with regards to the collective labour agreement. deleveraging. • PostNL will freeze certain capexes and major acquisitions. Credit rating agencies apply various corrections to the reported debt to determine adjusted debt figures used for metrics analyses. The main debt corrections typically include corrections for operating leases, pensions and restricted cash. PostNL has a €570 million committed revolving credit facility, which was fully undrawn at the end of 2011. Apart from this, PostNL has no material credit facilities or debt refinancing in the short term, with the first bond of €400 million maturing in 2015. There are no financial covenants. Debt cash outflows (including interest) < 1 yr 1 - 3 yr 3 - 5 yr > 5 yr Euro bonds 90 181 565 1,294 Other loans 31 7 Financial leases 2 2 Short-term debt 31 Total 154 190 565 1,294 (in € millions) Debt maturing over 1 year is recorded as long-term debt, refer to note 13 of the consolidated financial statements. At the end of 2011, net debt of PostNL was €1,002 million, compared to €993 million in 2010 (including net debt related to the discontinued Express activities). PostNL Annual Report 2011 13

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    Report of the Board of Management | Chapter 4 4 PostNL’s performance and outlook 2012 PostNL's business segments showed good performance in 2011. Underlying cash operating income was €220 million, well above the €130 - €170 million guidance given at the start of 2011. Business performance Parcels Volumes in Parcels continued to grow (+ 6%), mainly driven by the 2011 marked the creation of PostNL as an independent company trend of e-commerce and new customers. In particular, the good under the brand name PostNL. In its first year, the business summer period and the fourth quarter contributed to these results. performance of the stand-alone company was solid with good Revenues increased by 7.8% over the year to €608 million. The results in all segments compared to expectations. Segment details operational efficiency of the parcels network continues to increase. can be found in the chapters 5 (Mail in the Netherlands), 6 (Parcels), Underlying cash operating income was €92 million compared to and 7 (International). €81 million in 2010. Mail in the Netherlands The progress on the new logistical infrastructure is on track. After PostNL's customers kept on striving for lower costs and the the completion of the first hybrid depot in Waddinxveen, the depot substitution of traditional mail by electronic mail continued in Elst is also operational. Construction of the depots in Den Bosch relentlessly. Both these effects were visible in 2011. The volume and Hengelo has started. The new logistical infrastructure lays decline of addressed mail items was 7.2% for the year, below the down the structure to enhance further volume growth. guided range of 8 - 10% (2010: 9.0%). The main part of the decline is substitution. International In all three countries, the United Kingdom, Germany and Italy, Revenues in Mail in the Netherlands were €2,429 million, down 4.3% volumes and revenues increased. Total revenues in 2011 were compared to 2010. Underlying cash operating income was €154 €1,467 million, a growth of 13.4% compared to 2010. International million compared to €288 million in 2010. closed the year showing a positive underlying cash operating income of €5 million compared to a loss of €24 million in the year During the year, several key milestones were met. On the regulatory before. PostNL resized its German business, which already had a front, the 10% ‘reasonable rate of return’ on sales for USO (Universal positive impact on results. Service Obligation) products was passed by parliament, which means that the regulatory framework with regard to future tariffs On the regulatory front, the German postal regulator - the has been clarified. Following this clarification, PostNL announced Bundesnetzagentur - ruled against Deutsche Post AG and its budget new stamp prices in October, which became effective as of 1 subsidiary First Mail in June. The Bundesnetzagentur determined January 2012. The base domestic rate for letters in the Netherlands that the German Postal Act was breached in terms of pricing and has increased by four eurocents to 50 eurocents. non-discrimination regulations. The ruling was confirmed by Germany’s High Administrative Court in November. These rulings Another big step that was necessary to proceed with the Master are important steps on the path to break-even of TNT Post Germany Plans was taken. The unions’ members ratified the agreement in 2013. pertaining to the Master Plan III restructuring programme, including a limitation of the number of forced redundancies and the Ofcom (the UK regulator and competition authority) has published conditions under which redundancies can be made. In July, the a draft report in which it recognised the benefits of access Dutch Enterprise Chamber rejected all the objections by the Works competition, its importance to the development of delivery Council to the company’s intended reorganisations. This ruling competition and the positive effect end-to-end competition can means PostNL can go ahead with the necessary reorganisations, have on Royal Mail’s efficiency. Discussions will now start between including continuing to establish central preparation locations and the relevant parties. The report is expected to be published in March closing around 300 delivery offices in a phased approach. 2012. To help employees make the transition, the launch of a In Italy, Poste Italiane has been fined by the Italian anti-trust ‘Banenbedrijf’ (Job Company) was announced. The Job Company authority (AGCM) for abusing its position as the dominant operator is a mobility initiative to enable employees to find a new position in in Italy. The AGCM announced in December that it has imposed a the labour market. fine on the state-owned postal operator following a complaint by the main mail competitor TNT Post Italy and ordered the company A sector collective labour agreement for postal deliverers has been to stop the anti-competitive activities. ratified, in which the migration path towards 80% of postal workers in the Netherlands on labour contracts by September 2013 was Portfolio rationalisation agreed upon. Also, in December, an agreement was reached on a During the year, PostNL continued to refocus its operations, with company collective labour agreement for mail deliverers of PostNL. an eye both to providing customers with ever-better service and 14 PostNL Annual Report 2011

  • Page 15

    Report of the Board of Management | Chapter 4 | PostNL’s performance and outlook 2012 growing the business. To this end, PostNL exited non-core countries PostNL results and businesses. Year ended at 31 December 2011 2010 Total operating revenues 4,297 4,293 Other income 53 22 The sale of the mail activities in Belgium, ‘De Belgische Total operating expenses (3,933) (3,835) Distributiedienst’ and the unaddressed activities of RSM Italy was Operating income 417 480 completed in April. In August, PostNL completed the sale of its as % of total operating revenues 9.7 11.2 addressed and unaddressed mail activities in the Czech Republic Net financial expense (101) (106) and Slovakia. The divestments were part of the strategic choice to Income taxes (78) (91) concentrate the European mail activities on addressed mail in the Results from investments in associates (25) (1) large countries where PostNL has strong market positions: the Impairments of investments in associates (636) United Kingdom, Germany and Italy. Profit/(loss) from continuing operations (423) 282 Profit from discontinued operations 2,159 69 Profit for the period 1,736 351 In October, PostNL sold its 51% share in Telepost S.p.A. to one of Attributable to: the co-shareholders in the company, Manutencoop Facility Non-controlling interests 0 4 Management S.p.A. Telepost provides mailroom activities and Equity holders of the parent 1,736 347 related value-added office services in Italy. This transaction Earnings per ordinary share (in € cents)1 452.8 92.9 successfully finalised the realisation of the ‘Focus on Value’ strategy Earnings per diluted ordinary share (in € cents)2 452.8 92.5 through partnerships or sale. Normalised Earnings per ordinary share (in € cents)3 55.6 74.4 In December, Netwerk VSP discontinued its activities on the (in € millions) addressed mail market. Economic circumstances combined with 1 In 2011 based on an average of 383,374,983 outstanding ordinary shares (2010: current developments in the Dutch mail market offer insufficient 373,536,123). 2 In 2011 based on an average of 383,374,983 outstanding ordinary shares (2010: prospects for continuing these activities profitably in the longer 375,026,008). term. 3 Based on profit for the equity holders adjusted for profit from discontinued operations less impairments of investment in associates. Supersector Leader PostNL was named Supersector Leader for Industrial Goods and PostNL revenues and earnings Services in the 2011 Dow Jones Sustainability Indexes (DJSI) in In 2011, PostNL’s operating revenues grew by 0.1% to €4,297 million September. PostNL is included in DJSI Europe and DJSI World, (2010: €4,293). Addressed mail items in the Netherlands declined comprising 342 companies that represent the top 10% of leading by 7.2%, which is below the guided range for 2011 of 8% to 10%. sustainability companies. Parcels experienced good growth, with volumes up 6.0%. The number of working days had no impact when comparing the 2011 results to 2010, as both years had 255 working days. Financial performance The key drivers of PostNL’s financial results include: Operating revenues increased organically by €145 million (3.4%), • the volumes of mail and parcels PostNL delivers mainly due to a strong increase in International and Parcels, offset • the mix of services PostNL provides to its customers and the by an organic decrease in revenues in Mail in the Netherlands. The customer mix net negative acquisition and disposal effect amounted to €133 • the prices PostNL obtains for its services million (-3.1%) following international divestments. Foreign • the number of working days in a year exchange rate changes (mainly the euro against the British pound) • operating expenses, provisions and impairments accounted for a decrease of €8 million (-0.2%) in operating • PostNL’s ability to implement its restructuring programmes and revenues. level of restructuring payments • PostNL’s ability to adapt its operating expenses to shifting Other income increased to €53 million (2010: 22) and consisted volume levels mainly of the sale of real estate for a net amount of €17 million and • the development of the value of the retained stake in TNT the book gain on international divestments for a net amount of €33 Express, and million. • the level of pension fund obligations and the total pension contributions to the pension funds. Total operating income of €417 million decreased by €63 million (-13.1%), mainly due to lower underlying performance of Mail in the Netherlands and Mail Other, offset by improved performance of Parcels and International and lower non-recurring and exceptional net costs. The operating margin decreased from 11.2% in 2010 to 9.7% in 2011. Compared to 2010, the profit for the period attributable to the equity holders of the parent increased by €1,389 million. Excluding the net gain on demerger of €2,086 million and the impairment on the retained stake in TNT Express of €636 million, the profit for the PostNL Annual Report 2011 15

  • Page 16

    Report of the Board of Management | Chapter 4 | PostNL’s performance and outlook 2012 period attributable to the equity holders of the parent decreased Total depreciation, amortisation and impairment costs decreased by €61 million, which is in line with the net decrease in operating slightly by €8 million compared to 2010, mainly due to the timing income and income taxes. of capital expenditures. PostNL operating expenses Other operating expenses include items such as IT, communication, Year ended at 31 December 2011 2010 advisory and marketing expenses, office costs and various other Cost of materials 195 178 operating costs. In 2011, other operating expenses decreased by Work contracted out and other external €15 million (-5.5%) compared to 2010, mainly due to lower costs 1,937 1,701 expenses within Mail in the Netherlands for marketing and consultancy costs, Salaries, pensions and social security 1,429 1,561 lower costs due to deconsolidation of divested entities and lower contributions costs in International due to cost reduction programmes. This Depreciation, amortisation and impairments 112 120 Other operating expenses 260 275 decrease in costs was partly offset by the demerger related costs Total operating expenses 3,933 3,835 of €23 million in 2011 and one off benefits of €51 million (release (in € millions) claim provision and benefit profit pooling arrangement) in 2010. Operating expenses increased by €98 million (2.6%) to €3,933 PostNL underlying (cash) operating income development million in 2011. The organic growth in operating expenses was €235 Management monitors the financial performance of the Group and million (6.1%) mainly due to cost increases within International, the relating segments via the earnings measure 'underlying cash Parcels and Mail Other. Foreign exchange rate changes accounted operating income' as this focusses on the underlying cash for a decline of €8 million (-0.2%). The effect from acquisitions and performance, which is the basis for the dividend policy. In the disposals accounted for a decrease of €129 million (-3.4%). analysis of the underlying cash operating performance, adjustments are made for non-recurring and exceptional items as well as adjustments for non-cash costs for pensions (defined Work contracted out and other external expenses relate to fees paid benefit plans) and provisions. for subcontractors, external temporary staff, rent and leases. In 2011, the total amount on work contracted out and other external expenses increased by €236 million (13.9%) compared to 2010, For pensions, the IFRS-based defined benefit plan pension mainly due to the growth in Parcels and International resulting in expenses are replaced by the non-IFRS measure of the actual cash an increased utilisation of subcontractors. contributions for such plans. For the other provisions, the IFRS- based net charges are replaced by the related cash outflows. In 2011, costs of salaries, pensions and social security contributions decreased by €132 million to €1,429 million (-8.5%). This was mainly In the tables below, the segments are presented as Mail in the due to Master Plan savings of €71 million following the restructuring Netherlands, Parcels and International. Mail Other represents the programme in the Netherlands and the net effect of higher pension unaddressed activities outside the Netherlands classified as held expense in 2011 of €159 million versus the lower recorded for sale and head office entities, including the difference between restructuring charge of € 219 million in 2010. Pension expenses the recorded IFRS pension expense for the defined benefit pension increased by €159 million compared to 2010 due to a curtailment plans and the actual cash contributions. gain in 2010 of €74 million related to the Master Plan III restructuring, lower Express benefits of €20 million which were accounted for as a benefit for PostNL, and a lower discount rate. From reported to underlying (cash) operating income 2011 Underlying Reported Restructuring Underlying Changes in cash Year ended at 31 operating Demerger Rebranding related Book Resizing operating Changes in pension operating December income related costs PostNL charges gains International Pensions income provisions liabilities income Mail in NL 234 1 7 242 (64) (24) 154 Parcels 88 88 1 3 92 International (9) 13 4 3 (2) 5 Mail other 104 22 9 (38) (5) 92 (8) (115) (31) Total 2011 417 23 9 7 (38) 13 (5) 426 (68) (138) 220 (in € millions) From reported to underlying (cash) operating income 2010 Impairments Underlying Reported Restructuring and other Bad Underlying Changes in cash Year ended at 31 operating related value weather/ Profit operating Restructuring pension operating December income charges adjustments Other Strike pooling Pensions income payments liabilities income Mail in NL 188 187 (6) 10 379 (53) (38) 288 Parcels 80 80 1 81 International (29) 11 (6) (24) (24) Mail other 241 (20) (10) (41) (25) 145 (5) (144) (4) Total 2010 480 167 11 (22) 10 (41) (25) 580 (58) (181) 341 (in € millions) 16 PostNL Annual Report 2011

  • Page 17

    Report of the Board of Management | Chapter 4 | PostNL’s performance and outlook 2012 From reported to underlying operating income Underlying net cash income amounted to €41 million in 2011 (2010: The 2011 underlying operating income amounted to €426 million 144). The decrease is mainly explained by lower underlying cash (2010: 580). Underlying operating income excludes non-recurring operating income. and exceptional items such as demerger related costs of €23 million, rebranding costs of €9 million, restructuring-related charges for PostNL net financial expenses Netwerk VSP addressed of €7 million, a book gain on the divestment Year ended at 31 December 2011 2010 of Belgische Distributiedienst of €38 million , costs for resizing within Interest and similar income 20 14 International of €13 million and the pension cash contribution of Interest and similar expenses (121) (120) Express during January until May 2011 of €5 million (2010: 25). The Net financial expenses (101) (106) latter represents the difference between the IFRS expense and the (in € millions) cash contribution paid from Express to the Group, up to the moment of the demerger. Interest and similar income in 2011 of €20 million relates to external interest from banks, interest on taxes and gross up of interest on In 2010, operating income was impacted by non-recurring cash pools of €13 million and €7 million of interest received from restructuring-related charges, mainly related to the announced Express relating to outstanding positions. Master Plan III restructuring programme, a write-down of goodwill allocated to Spring Global Mail, the impact of extreme weather Interest and similar expenses in 2011 of €121 million mainly relates conditions and the strikes in the Netherlands, the impact of Express to interest expense on long-term borrowings of €97 million, interest relations (profit pooling and pensions) and various other items. on provisions of €8 million and interest on bank overdrafts of €4 million. Operating income for Mail Other amounted to €104 million (2010: 241), which relates to non-allocated for an amount of €64 million PostNL income taxes (2010: 231) and to the unaddressed activities classified as held for Year ended at 31 December 2011 2010 sale for an amount of €40 million (2010: 10). The non-allocated Current tax expense 59 96 operating income related largely to the pension income of €89 Changes in deferred taxes 19 (5) million as Mail Other records the difference of the recorded Total income taxes 78 91 (in € millions) expenses in all segments and the overall IFRS pension expense. The remainder of -€25 million of non-allocated operating income related to the net impact of demerger costs, board salaries, PostNL’s income taxes amounted to €78 million (2010: 91), a rebranding costs, shareholders costs and the contribution of shared decrease of 14.3% compared to 2010, mainly due to a decrease in services. profit before taxes. The movement in deferred taxes is mainly due to timing differences resulting from changes in provisions and fixed assets. From underlying operating income to underlying cash operating income Underlying cash operating income in 2011 was €220 million, 35.5% Income taxes differ from the amount calculated by applying the lower than last year. The underlying cash operating income margin Dutch statutory income tax rate to the income before income taxes. was 5.1% in 2011 (2010: 7.9%). In 2011, the effective tax rate before the impairment on the retained stake in TNT Express was 24.7% (2010: 24.4%), which is lower than the statutory income tax rate of 25% in the Netherlands (2010: The changes in provisions in 2011 of €68 million represented the 25.5%). For further details, see note 23 of the consolidated financial difference between the recorded underlying net cost for statements of PostNL N.V. restructuring and other provisions of €11 million and the actual cash settlements of €79 million. The cash out for restructuring programmes in the Netherlands related mainly to Master Plan III Financial position and the disentanglement of Postkantoren B.V. In 2010, the cash out Summary statement of financial position for restructuring related payments amounted to €58 million. At 31 December 2011 2010 Non-current assets 2,807 1,849 Current assets 1,259 634 The changes in pension liabilities of €138 million (2010: 181) is the Assets classified as held for sale 52 123 difference between the recorded underlying pension expense of Assets classified for demerger 5,531 €122 million (2010: 57) for the defined benefit plans and the actual Total assets 4,118 8,137 cash payments of €260 million (2010: 239). The underlying pension Equity 414 2,443 expense of €122 million is derived from the recorded pension Non-current liabilities 2,368 2,395 expense of €117 million corrected for the €5 million adjustment Current liabilities 1,336 1,262 related to Express. Liabilities related to assets classified as held for 26 sale PostNL underlying (net) cash operating income Liabilities related to assets classified for 2,011 2011 2010 demerger Underlying cash operating income 220 341 Total liabilities and equity 4,118 8,137 as % of operating revenues 5.1 7.9 (in € millions) Income taxes (78) (91) Net financial expenses (101) (106) The 2011 financial position as presented above includes the Underlying net cash operating income 41 144 (in € millions) retained stake in TNT Express, which is part of the non-current assets, whereas in the 2010 financial position the net assets and PostNL Annual Report 2011 17

  • Page 18

    Report of the Board of Management | Chapter 4 | PostNL’s performance and outlook 2012 liabilities of the Express activities were presented as assets Net cash from operating activities classified for demerger of €5,531 million and liabilities related to Net cash from operating activities decreased to €122 million in 2011 assets classified for demerger of €2,011 million. After elimination of from €171 million in 2010. The €49 million decrease was mainly due a net intercompany position of €526 million, the net equity of the to lower cash generated from operations of €154 million, partly discontinued Express activities amounted to €2,994 million in 2010. offset by lower taxes paid of €107 million. During the Extraordinary General Meeting of Shareholders on 25 The decrease in cash generated from operations is in line with the May 2011, the proposal to demerge 70.1% of the discontinued decrease in underlying cash operating income. Ttotal working Express activities was approved. The net impact on equity following capital , as part of cash generated from operations, improved by the demerger and consequently the revaluation of the retained €45 million compared to 2010 due to improved payment behaviour stake in TNT Express was €1,564 million. After demerger, the value of customers complemented by continued focus on payment of the retained stake in TNT Express was reduced by €640 million terms of suppliers. due to the recorded impairment charges impacting equity negatively. Total equity reduced to €414 million at 31 December In 2011, income taxes paid were €98 million, compared to €205 2011, of which €400 milion equity was attributable to the million taxes paid in 2010. The net tax cash outflow in 2011 is lower shareholders. due to relatively high taxes paid in 2010 as a result of tax payments relating to prior years and higher preliminary payments in 2010. The non-current assets of €2,807 million at 31 December 2011 consisted mainly of goodwill of €121 million (largely related to Net cash used in investing activities International and Mail in the Netherlands), other intangibles of €55 The total net cash used in investing activities amounted to €47 million (related mainly to IT software), property, plant and million (2010: - 92). Net cash used for other investing activities equipment of €451 million (related to land, depots and sorting mainly related to interest received (€7 million) and dividend machinery), pension assets of €1,217 million and the retained stake received from the retained stake in TNT Express (€7 million). Net in TNT Express of €936 million. cash from acquisitions and disposals of €108 million mainly relates to the disposal of De Belgische Distributiedienst, Lifecycle The current assets of €1,259 million at 31 December 2011 mainly Marketing in the United Kingdom, RSM Italy S.r.l. and Telepost S.p.A. related to trade accounts receivable of €417 million and in Italy and the international activities in Eastern Europe, and the prepayments and accrued income of € 121 million. Cash and cash acquisition of Formula Certa Delivery S.r.l. in Italy. equivalents totalled €668 million at 31 December 2011 (2010: 65). This increase is due to the settlement of former intercompany Net cash used for capital investments and disposals related to positions with the demerged Express activities. capital expenditures on property, plant and equipment and other intangible assets of €137 million (2010: 109) and proceeds obtained Off-balance sheet items from the sale of buildings and equipment in 2011 of €62 million PostNL's off-balance arrangements are disclosed in note 28 of the (2010: 17). consolidated financial statements of PostNL N.V. Capital expenditures/proceeds Year ended at 31 December 2011 2010 Cash flow data Property, plant and equipment 104 88 Liquidity and capital resources Other intangible assets 33 21 PostNL’s capital resources include funds provided by PostNL’s Cash out 137 109 operating activities and capital raised in the financial markets. Proceeds from sale of property, plant and 62 17 equipment The following table provides a summary of cash flows from Disposals of other intangible assets 0 1 continuing operations. Cash in 62 18 Netted total 75 91 (in € millions) Statement of cash flows from continued operations Year ended at 31 December 2011 2010 Cash generated from operations 321 475 Capital expenditure on property, plant and equipment and other Interest paid (101) (99) intangible assets totalled €137 million in 2011, an increase of 25.7% Income taxes paid (98) (205) compared to 2010, due to strict cash control and phasing of some Net cash from operating activities 122 171 capexes. The main capital expenditures in 2011 related to Net cash used for other investing activities 14 2 machinery and equipment (€43 million), information technology Net cash used for acquisitions and disposals 108 (3) (€33 million) and housing (€61 million). Significant investments Net cash used for capital investments and (75) (91) were made in the new Parcels infrastructure (€45 million) and in disposals the new infrastructure in Mail in the Netherlands as was set out in Net cash from/(used in) investing activities 47 (92) the Master Plans (€32 million). Net cash used for dividends and other changes (86) (117) in equity Net cash used in financing activities Net cash from debt financing activities 518 24 In 2011, dividends of €80 million (2010: 119) were paid as a second Net cash from/(used in) financing activities 432 (93) interim cash dividend over 2010 and an interim cash dividend over Changes in cash and cash equivalents 601 (14) (in € millions) 2011. The net cash from debt financing activities of €518 million in 18 PostNL Annual Report 2011

  • Page 19

    Report of the Board of Management | Chapter 4 | PostNL’s performance and outlook 2012 2011 (2010: 24) mainly relates to the settlement with Express at Appropriation of profit the demerger. The Board of Management, with the approval of the Supervisory Board, has appropriated an amount of €1,015 million out of profit Dividend to the reserves. Following this appropriation, there remains an amount of €112 million of the profit that is at the disposal of the Change in accounting framework of corporate financial Annual General Meeting of Shareholders. Subject to the adoption statements of PostNL’s financial statements by the Annual General Meeting of In 2011, PostNL changed the accounting framework of its corporate Shareholders, the proposed 2011 dividend has been set at €0.407 financial statements of PostNL N.V. from Dutch GAAP to EU-IFRS in per ordinary share of €0.08 nominal value. After adjusting for the respect of the financial year 2011, including amendments of the 2011 interim dividend of €0.214 per ordinary share as paid out partly comparative financial year. Please refer to the corporate financial in cash and shares in August 2011, the final dividend will be €0.193 statements as included in chapter 13 and the relating notes 37-58. per ordinary share based on the outstanding number of 392,301,442 ordinary shares as per 31 December 2011. These In 2011, the corporate profit for the period attributable to the equity amounts include the pass-through of the dividend received from holders of the parent amounted to €1,127 million. At 31 December the retained stake in TNT Express. The final dividend of €0.193 will 2011, total corporate shareholders' equity amounted to €1,918 be payable fully in ordinary shares and represent a cash equivalent million. of €76 million. Upon approval, shareholders will receive their dividend in shares and consequently the corresponding cash Dividend proposal 2011 equivalent of €76 million will be deducted from the profit PostNL will propose to the Annual General Meeting of Shareholders, attributable to shareholders and added to the reserves. the distribution of a 2011 dividend of €0.407 per ordinary share, of which €0.214 per ordinary share has been paid as an interim The dividend in shares will be paid out of additional paid in capital dividend. These amounts include the pass-through of the dividend as part of the distributable reserves, free of withholding tax in the received from the retained stake in TNT Express. The final dividend Netherlands. of €0.193 will be payable fully in ordinary shares and includes the pass-trough of the final dividend to be received from the stake in Upon approval of this proposal, profit will be appropriated as follows, TNT Express, which is subject to approval by the Annual General whereby the final dividend represents a 100% stock dividend. Meeting of TNT Express. The dividend in shares will be paid out of additional paid in capital as part of the distributable reserves, free Appropriation of profit of withholding tax in the Netherlands. 2011 Profit attributable to the shareholders 1,127 The conversion rate will be based on the volume-weighted average Appropriation in accordance with the articles of share price for all PostNL N.V. shares traded on NYSE Euronext association: Amsterdam over a three trading day period from 2 May up to and Reserves adopted by the Board of Management and including 4 May 2012 and will be targeted at no premium. There will approved by the Supervisory Board (article 31, par. 2) (1,015) be no trading in stock dividend rights. The ex-dividend date will be Dividend on ordinary shares 112 26 April 2012 and the record date is 30 April 2012. The dividend will Interim dividend paid 36 be payable as of 8 May 2012. Final dividend 76 (in € millions) Dividends paid in 2011 On 11 March 2011, TNT N.V. paid a second interim dividend of €0.29 Group companies of PostNL N.V. per ordinary share over 2010. Over 50% of the outstanding capital The list containing the information referred to in article 379 and has elected for dividend to be paid in shares, which resulted in a article 414 of book 2 of the Dutch Civil Code is filed at the office of cash payout of €44 million and the issuance of 3,626,163 shares. the Chamber of Commerce in The Hague. The 2011 interim dividend of €0.214 per share, optional for the Subsequent events shareholder in cash or shares, was paid on 30 August 2011. Again, In its press release of 17 February 2012, TNT Express announced over 50% of the dividend was paid in shares, leading to a cash payout that it had received an unsolicited non-binding and conditional of €36 million and the issuance of 12,336,183 million shares. proposal from United Parcel Service, Inc. (UPS) for the acquisition of the whole of the issued capital of TNT Express at an indicative Extract from the articles of association on appropriation of profit price of €9 per ordinary share. The retained stake in TNT Express is Under PostNL’s articles of association, the dividend specified in valued at €5.77 per share at 31 December 2011. TNT Express' share article 31, paragraph 1 will first be paid on the preference shares B price was €9.39 at 24 February 2012 close of business. Continuation if outstanding. Subject to the approval of PostNL’s Supervisory of this level would have a significant positive impact on result and Board, the Board of Management will determine thereafter which equity of PostNL. part of the profit remaining after payment of dividend on any preference shares B will be appropriated to the reserves (article 31, paragraph 2). The remaining profit after the appropriation to reserves shall be at the disposal of the general meeting of shareholders (articles 31, paragraph 3). No dividend shall be paid on shares held by PostNL in its own capital (article 31, paragraph 6). Preference shares B have not been issued in 2011, PostNL Annual Report 2011 19

  • Page 20

    Report of the Board of Management | Chapter 4 | PostNL’s performance and outlook 2012 Outlook 2012 Outlook 2012 Actual Outlook Actual Outlook Underlying revenues 2011 Underlying revenues 2012 Underlying cash operating income/ Underlying cash operating income/ margin 2011 margin 2012 Mail in NL 2,429 - low single digit 6.3% 1 to 3% Parcels 608 + high single digit*1 15.1% 13 to 15% International 1,475 + high single digit 0.3% 1 to 2% Total 4,305 + low single digit 220 110 to 160 5.1% 2 to 4% 1 Due to shift registered mail from Mail in NL to Parcels. Indicators 2012 • Expected volume decline addressed mail 6.5% – 8.5% (2011: 7.2%) • Master plan savings €40 – €60 million (2011: 71) • Master plan implementation costs €80 – €100 million (2011: 65) • Pension expenses are expected to be around €60 million (2011: 122) • Pensions gross regular pension contributions for defined benefit obligations approximately €290 million (2011: 260) • Cash outflows from provisions around €90 – €110 million of which €80 – €100 million related to Master Plan implementation (2011: 68 of which 65 related to Master Plans) • Rebranding around €16 million (2011: 9) • Net financial expense around €110 million (2011: 101) • Effective tax rate excluding impact of stake TNT Express around 27% (2011: 25%) • Cash capex maximum of €240 million (2011: 137) • Top-up pension payments not included in the outlook 20 PostNL Annual Report 2011

  • Page 21

    Report of the Board of Management | Chapter 5 5 Mail in the Netherlands Mail in the Netherlands is the segment of PostNL that is responsible for the mail business in the Netherlands, and for data and document management services. Market developments Today, the Dutch market holds two nationwide mail companies, PostNL and Sandd, and a number of local players. In 2011, PostNL's The mail market in the Netherlands is changing rapidly. As competitors had a market share of 16%, most of which is communication becomes increasingly digital, addressed mail represented by Sandd. volumes continue to decline. Transaction-related items such as bank statements and invoices are increasingly moving online. At the same time, unaddressed mail volumes continue to grow. Business developments Digital communication Consumers’ desire to have more ‘emotional’ items such as Building upon the value perception of mail items, PostNL magazines and leaflets delivered to their homes has not changed. introduced services that meet customers' request to combine At the same time, mail senders continue to strive to minimise costs physical and digital communication. An example is the introduction and substitution of traditional mail by e-mail is an ongoing process. of Folders.nl, which allows consumers to browse through all Both effects were clearly visible in 2011. The volume decline of brochures that were physically delivered in their area, and compare addressed mail items in the Netherlands was 7.2% for the year, the offerings of all retailers in a certain branch. This portal intends below the guided range of 8-10%. to stimulate flexibility for both consumer and retailer, as well as to enable consumers to view those leaflets that meet their needs. Consumers welcomed the initiative, with Folders.nl receiving almost 500,000 visitors per month by the end of 2011. The Dutch mail market is developing in line with expectations Digital initiatives are not new for PostNL. Folders.nl fits in the history of services such as Fotoservice, Kadowereld, TryNow and Sjopze, Volume development all launched in previous years. With initiatives like Folders.nl, PostNL Annual volume decline (%) intends to be at the cutting edge where physical meets digital, thus filling the link between sender and recipient in both worlds, aiming Cumulative volume development to maintain the profitability of the organisation. 0 00 01 02 03 04 05 06 07 08 09 10 11 100 Digital stamps –2 Using digitisation to facilitate sending mail, PostNL reinforced its 90 –4 efforts to stimulate digital franking. In 2011, the use of digital 80 franking grew by around 80%. The service was designed for –6 70 business customers, but turned out to be attractive for consumers –8 as well. – 10 60 Business portal In 2011, PostNL developed a new business gateway for online More and more, mail is becoming a communications channel that postal products and services for business customers, called is used in combination with digital communication means. A leaflet Mijnpost. Mijnpost provides a platform for preparing shipments of or brochure is intended to attract consumers to websites to order bulk mailings, parcels and registered mail, allowing customers to their purchases. In line with these developments, the requirements view order details. It also offers standard reporting. of mail senders have changed. No longer is next day delivery on five or six days a week one of the key requests of business mail senders. In line with the online ambitions of PostNL, the portal fully replaces With this changing market demand, new entrants, with business the old and less user-friendly system. The portal was officially models delivering mail two days a week, entered the marketplace launched on 1 January 2012, and after three weeks had over 16,000 in 2001. registered accounts, representing nearly 30% of all business orders. However, driven by continued mail volume decline and the legal Customers and products obligation for market entrants to improve labour conditions (see chapter 17), the competitive landscape changed significantly in Basic product for business customers 2011. SelektMail was taken over by Sandd, and PostNL decided to Driven by the changing market characteristics described above, close its activities on the lower end of the addressed mail market, PostNL finalised the implementation phase for the introduction of provided through its subsidiary Netwerk VSP, as of 17 December a more flexible Basic product based on delivery with peak and off- 2011. Given the current mail market and the economic peak days at a lower rate. This product offers business customers circumstances, insufficient perspective was seen to continue these the choice of day-certain delivery of non time-sensitive business activities profitably in the longer term. mail three days a week. By the end of 2011, 40% of the non time- PostNL Annual Report 2011 21

  • Page 22

    Report of the Board of Management | Chapter 5 | Mail in the Netherlands sensitive business mail had shifted from the traditional products to Together with airline KLM, PostNL introduced the highest mailbox this Basic product. on earth by offering passengers the possibility of sending a postcard on intercontinental flights. With space agency ESA, Dutch This new product has an impact on the entire operational chain of astronaut André Kuipers sent the first postcard from space with an mail senders. Call centre capacities are organised based on the online postcard app. Together with the Stichting Wenskaart, a delivery day of a campaign and magazines have their editorial foundation to stimulate the sending of postcards, and Dutch deadlines based on print, which is again based on delivery days. In television channel SBS6, a weekly television series was designed order to streamline the transition, PostNL worked closely with around sending postcards. customers and the printing industry to connect their operational chain to this product. PostNL continued to innovate in stamps to demonstrate that postal products are not outdated. Following initiatives like the personal stamps, the silver stamp and the movie stamp in previous years, in 2011 a music stamp was designed. with a smartphone app that The Basic product: plays the music virtually included in the stamp. Peak day delivery Local retail presence THU FRI SAT SUN MON TUE WED THU FRI SAT In 2011, the last traditional post office in the Netherlands was 72 closed. In its endeavours to offer its customers the best service, PostNL started opening “shop-in-shop” post offices eight years 72 48 ago. This makes it possible for customers to take care of their postal needs while doing their shopping. Currently, PostNL operates 72 48 around 2,600 “shop-in-shop” post offices, making it the largest retailer in the Netherlands. Operational developments New operational model: Master Plan III Advance notice recommended • Via MijnPost (postnl.nl/mijnpost) until 12pm on the working day before delivery. A more flexible operational structure is needed in order to both cushion the effects of the declining mail market and make way for Drop-off • Drop off 2 working days before delivery (Basic 48-hour). new products like the Basic product. • Drop off 3 working days before delivery (Basic 72-hour). • You can drop off your consignment, depending on volume, at a Business counter, Business Point or a PostNL drop-off location. • Or via your pick-up route/or have it picked up. In 2010 and 2011, the foundations were laid for a more flexible Delivery operational model in which sorting and preparation of mail are • Choose one of the delivery days for delivery of the whole consignment: Tuesday, Thursday or Saturday. concentrated in a limited number of central preparation sites. At those sites, mail rounds will be fully prepared for delivery. All local offices will be closed and replaced by depots where part-time mail Pricing policy deliverers pick up their fully prepared mail. Next to the introduction of Basic, PostNL fully reviewed its product and pricing policy for large customers in 2011. New tariff lines, including size-driven tariffs, were introduced and the rate structure As a consequence of this reorganisation, the job previously filled by was substantially simplified . the traditional full-time mailman will now be performed by more than one person. Preparation of mail delivery rounds and delivery of mail will become specialised, part-time jobs. The job of the The tariffs of single item mail in 2011 stayed within the price cap traditional full-time mailman, who both prepares and delivers the and the permitted framework of the regulator. The base rate for a mail rounds, will disappear. stamp for single items up to 20g increased by €0.02 on 1 January 2011, and by another €0.04 on 1 January 2012. The tariffs of franking machines stayed in line with the tariffs for stamps. Products for The implementation of this new operational model started early registered letters and parcels were restructured and simplified to 2012, and will last until mid 2013. PostNL will gradually close make the customers' choice easier. approximately 300 delivery offices. Employees were informed of these closures in July 2011. Unaddressed mail In 2011, Interlanden decided to leave the market place for As part of the operational redesign, an Auto Unit was created in unaddressed mail. With a targeted customer approach, PostNL's 2010 and became fully operational in 2011. This unit is responsible subsidiary Netwerk VSP succeeded in taking over a large part of the for all small transportation movements in the organisation, thus customer contracts, which resulted in a growth of the unaddressed enabling more efficient use of all smaller cars, which will add to the business of Mail in the Netherlands by 22%. savings of the Master Plan programme. Consumer mail services It is intended that the Master Plans will lead to annual cost savings The way consumers perceive a mail item is key to maintaining the of around €330 million by 2017 compared to 2011. In 2011, €71 value perception of mail. Campaigns, actions with partners and million in savings was realised. PostNL is on track with the innovations are bringing the joy of sending and receiving mail to implementation of its Master Plans. the attention of consumers. 22 PostNL Annual Report 2011

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    Report of the Board of Management | Chapter 5 | Mail in the Netherlands Marketing communication Master Plans Under the brands EuroMail and Cendris, a multitude of marketing Milestones towards total redesign of operations communication solutions are developed that improve both the effectiveness and the efficiency of marketing & sales processes. 2011 2012 2013 2014 2015 2016 2017 Customers are offered advice in the design of their multi-channel Implementation basic proposition marketing campaigns, data analysis, support in selecting the proper Centralised sequencing process target groups and communication channels and tools to improve Lean overhead data quality, print and fulfilment. At the back end, customer contact Further automatic services are provided through call centres, including web-based sequencing process solutions like webcare, social media and community management. Planning of cost savings and restructuring cash outflow up to 2017 E-commerce solutions 2011 2012 2013 – 2017 PostNL is directly impacted by the strong development of e- Annual cost savings € 71 m € 40 – 60 m € 200 – 220 million commerce. It causes mail volumes to decline and parcel volumes to grow. That is why PostNL has made it part of its strategy to play Restructuring cash out € 65m € 80 – 100 m € 180 – 210 million an important role in the development of e-commerce solutions (see chapter 2). The e-commerce offerings range from marketing to delivery to Transition to new labour force invoicing, and rely on experience gained with PostNL’s own services Smooth transition from the current labour force to a new, over the last few years, such as online shopping street Sjopze.nl and sustainable labour force structure is crucial for the success of the webshop Kadowereld.nl. PostNL's e-commerce portfolio includes new operational model. The implementation of the redesign will individual parts of the chain, such as web design and fulfilment, and result in a loss of around 11,000 operational jobs, most of which will can be extended to managing the entire value chain from webshop be resolved through the termination of temporary jobs, natural to distribution. This enables customers to become more successful attrition and voluntary mobility. Employees will be offered either through their online sales channel. In order to give this activity the part-time roles, other full-time positions at PostNL or help finding right focus, a dedicated entity was created. work outside the company. Billing It was agreed with the unions to create 1,000 jobs in the Auto Unit, Under the PostNL brand, different billing and e-billing solutions are 300 in the Parcels segment, 400 in sorting and conditionally 200 in offered, ranging from physical invoice printing to different e-billing other parts of the organisation. This will help to reduce the number solutions and debt management. In 2011, PostNL managed to of forced redundancies. Furthermore, PostNL will put maximum acquire and subsequently integrate the billing and e-billing effort into moving as many people as possible into new jobs outside activities of T-Systems in the Netherlands. the company. More details on these efforts can be found in chapter 9. Key financial results With the move from a model of a mainly full-time operational Operating income Mail in NL Year ended at 31 December 2011 variance % 2010 workforce to one of mainly part-time staff, a new type of employee Total operating revenues 2,429 (4.3) 2,538 enters PostNL. Mail deliverers pick up their mailbags from a dense Other income 17 11 network of depots, often within walking or cycling distance from Total operating expenses (2,212) 6.3 (2,361) their home, and deliver mail in their local neighbourhood. Most mail Operating income 234 24.5 188 deliverers combine their job in PostNL with other employment, Underlying cash operating income 154 (46.5) 288 study, leisure or family activities. as % of operating revenues 6.3 11.3 (in € millions, except percentages) In December, PostNL reached agreement with trade union BVPP on a new collective labour agreement for mail deliverers. The Operating expenses Mail in NL Year ended at 31 December 2011 variance % 2010 agreement offers a higher pay to employees who remain with Cost of materials 133 2.3 130 PostNL as mail deliverers for a longer period. The starting salary Work contracted out and other follows the minimum wage standards. Mail deliverers can now also external expenses 747 9.1 685 take unpaid leave. The collective labour agreement will run from 1 Salaries, pensions and social security January 2012 to 31 December 2012. contributions 1,064 (14.6) 1,246 Depreciation, amortisation and Services and solutions impairments 66 (5.7) 70 Other operating expenses 202 (12.2) 230 Mail services are part of the value chain of customers. With a Total operating expenses 2,212 (6.3) 2,361 portfolio of products and services that are combined to support (in € millions, except percentages) customers in their marketing and communications, e-commerce and billing value chains, PostNL aims to become part of this value chain in order to both stimulate the letter mail and parcels business while at the same time preparing for growth outside its core. PostNL Annual Report 2011 23

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    Report of the Board of Management | Chapter 5 | Mail in the Netherlands Operating statistics Mail in NL security contributions decreased by €182 million, mainly due to the Year ended at 31 December 2011 variance % 2010 impact of the Master Plan restructuring provision in 2010. Single items (millions) 870 (7.5) 941 Bulk mail (millions) 2,907 (7.1) 3,129 Addressed postal items delivered 3,777 (7.2) 4,070 In 2011, Mail in the Netherlands’ underlying cash operating income per Netherlands delivery address 481 (6.2) 513 decreased from €288 million to €154 million. Main items that (items) explain the decline are the 7.2% volume decline of addressed mail per Netherlands inhabitant (items) 226 (7.4) 244 in the Netherlands, higher restructuring cash-out, higher Master per FTE (thousands of items)1 166 (1.8) 169 Plan initial costs, increased autonomous costs, partly offset by per delivery day (millions) 12.3 (7.5) 13.3 Master Plan savings. average percentage of national mail 82 82 sorted automatically (%) 1 The FTE (full-time employee equivalent) definition is based on a 37-hour work week. Mail in the Netherlands experienced a continued decline in addressed postal item volumes in 2011, which was primarily due to a decline in single items and reduced demand for bulk mail as a result of cost-saving programmes initiated by some of PostNL’s key customers and due to the continued substitution by electronic media. The economy product retained volumes in the market, resulting overall in a limited loss of volumes to competition. In total, addressed mail items in the Netherlands decreased by 7.2%. The volume of unaddressed mail items increased by 22%, mainly due to volumes from Interlanden. Besides volume development, prices are a key factor in PostNL's financial performance. OPTA set the starting tariffs for 2010, following PostNL’s proposal. Subsequently, the company announced a 4.5% average increase for stamp prices, effective 1 January 2011. The basic domestic mail rate for the Netherlands increased by two euro cents to €0.46; for mail to other European destinations, the basic rate increased to €0.79, also a two euro cent rise. The rate for mail being sent outside Europe remained at €0.95. There are no fixed prices for bulk mail and other mail items. The price for bulk mail remained under pressure in 2011. With respect to rates and conditions, OPTA sets rates for the universal postal services every four years, within the regulatory framework approved by parliament of a reasonable rate of return of 10%. As of 1 October 2011, OPTA set the 2012 rates in accordance with the recommended rates proposed by PostNL. The base domestic rate for letters in the Netherlands will increase by four euro cents to 50 euro cents as of 1 January 2012. In 2011, Mail in the Netherlands continued the implementation of the existing Master Plans in the Netherlands. Master Plan initiatives consist of efficiency measures and a restructuring of labour costs. Master Plan savings of €71 million were achieved. In 2011, the implementation of Master Plan III was started. The exact reorganisation proposals will be determined over the coming months in consultation with the works council. Operating revenues for Mail in the Netherlands decreased by €109 million (4.3%) in 2011 compared to 2010. This revenue decrease is mainly due to volume decline in addressed mail items, offset by a positive price-mix effect. The net acquisitions and disposals effect was nil. Mail in the Netherlands’ operating expenses decreased by €149 million in 2011 compared to 2010. The cost of salaries and social 24 PostNL Annual Report 2011

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    Report of the Board of Management | Chapter 6 6 Parcels PostNL operates parcels businesses in the Netherlands as well as in Belgium and has developed an advanced international network with partners across Europe. Market developments Innovative IT solutions In 2011, PostNL developed an internet portal for online shoppers, The parcels market developed rapidly over the last few years, which was launched in November 2011. It gives shoppers greater particularly driven by the continued growth in domestic and control and choice for orders that will be delivered by PostNL by international e-commerce. PostNL is a leading provider of a broad giving them an overview of all their online purchases, including the range of services that meet the needs of both consumers and place and time it needs to be delivered. This way, PostNL is businesses. In e-commerce, consumers increasingly want to be in responding to the desire of online shoppers and webshop owners control of when and where they will receive their parcels. As such, for greater choice and influence regarding the delivery of online they require mobile tracking solutions, a wide range of delivery purchases, including time slot delivery, delivery at work or at a options and a convenient return solution. Furthermore, the nearby post office. extension of e-commerce into new product categories leads to a growing need for special delivery solutions such as high value, extra- secured and two-man deliveries. In addition to the pure players One of the barriers for consumers to further grow their online (only clicks, no bricks), web shops combining both clicks and bricks shopping is the security of payment. PostNL has developed Check are strongly positioned to leverage existing high street brands Pay, a secure payment solution, which enables the consumer to online. pay on receipt, while giving the web shop the guarantee of payment. Through this service, PostNL aims to further stimulate web shopping, which will lead to a further growth of 2C parcel Online shopping does not stop at national borders. On the contrary, volumes. demand for cross-border parcel services is growing. This growth is driven both by a push from successful web shops looking for growth outside their domestic market and by a pull from consumers looking Belgium for products not (yet) available in their home markets, or products In 2011, PostNL focused on strengthening its position in Belgium. that can be purchased cheaper abroad. The network performed well both in terms of quality of performance and financial results. Delivered volumes have grown, particularly due to growing import volumes, whereas revenues grew due to Business developments growth in export volume. The capability to deliver on Saturdays has Market position proven to be a differentiator in the Belgium market. As a leading player in the to-consumer (2C) market, PostNL is in a strong position to benefit from the growth in e-commerce that is PostNL is currently investing the rollout of hand terminals across its driving the growth of the business-to-consumer (B2C) and network to enable near real-time tracking of parcels. This will open consumer-to-consumer (C2C) parcels market. PostNL facilitates up a range of opportunities for product extensions and around 85% of all Dutch web shops, helping them grow their developments to cater for and accommodate the ever-evolving businesses with tailored delivery services to their customers. With needs of e-commerce businesses. dedicated IT-driven initiatives in the 2C market, PostNL increased its lead in the fast-growing Dutch B2C and C2C parcels markets. Customers and products Growth was realised through the e-commerce development, and Customer segmentation also by new customer contracts. PostNL’s share of the B2B market In its market approach, PostNL recognises two market segments remained steady at around 16% in 2011. with different customer characteristics: to-consumer and to- business. 2C market Volume development In the 2C market, PostNL is market leader. Developments in this (millions of parcels, excl Belgium, Cargo and Transport) segment are mainly driven by e-commerce developments, where the receiving customers increasingly determine the delivery 150 140 requirements. Innovative IT solutions that enable consumers to be 130 in the driver seat of their shipments, like mijnpakket.nl, cover these 120 requirements. 110 106 100 100 90 90 80 80 To tap into the growth segments in the parcels market, PostNL looks 70 67 70 74 beyond parcels to specialist segments and trends, as well as 65 63 64 65 60 integrated chain solutions including fulfillment. The changing face 50 – 3% – 3% 2% 1% 8% 5% 8% 12% 11% 7% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 of the parcels market leads to more purchases by customers of 'white' goods, such as washing machines and fridges, over the internet. Web shopping is no longer determined by the item's size PostNL Annual Report 2011 25

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    Report of the Board of Management | Chapter 6 | Parcels or weight. That is why PostNL established Extra@home in 2010. It The new infrastructure combines sorting and distribution activities delivers large electrical appliances to households across the in 18 hybrid depots throughout the country. Parcel deliverers, country and collects and disposes of packaging and the discarded mainly subcontractors, pick up the parcels for their delivery rounds electrical appliances. Furthermore, PostNL has dedicated solutions from the sorter, sort them directly into their van and then start for goods that require special treatment and are increasingly delivery. This solution minimises the loading time of a van, requires ordered online, such as wine and valuable goods. less physical effort from the driver and reduces the risk of missorts. The overall concept offers Parcels the opportunity to grow while at 2B market the same time reducing costs and remaining flexible to market In the other segment, the 2B market, innovation, creativity and developments. tailoring the PostNL offering to customer demands are key. ParcelPlus, for example, is developed to serve customers with The transition from the old to the new structure will be a gradual special wishes concerning delivery. This can entail relabeling process, lasting until 2015. In 2011, the implementation of the new products, adjusting barcodes or building a shop display. logistical infrastructure progressed well. The first hybrid depot in Waddinxveen started operations on 4 July 2011. The hub in Elst The main focus in the 2B segment is shop logistics. An important began production in November. Construction of the hubs in Den aspect within shop logistics is the tendency of customers wanting Bosch and Hengelo took off, and for several other locations the to outsource their 'in-house' distribution activities to an operator building ground has been acquired. In the end, the 18 new hubs will such as PostNL. In 2011, PostNL insourced the distribution of all replace three large sorting centres and 45 large distribution centres. travel guides to travel agencies in the Netherlands. Prior to that, PostNL began delivering magazines to local book shops and kiosks In order to ensure a smooth transition, progress is being carefully in 2009. The distribution network of PostNL is well equipped for in- measured. The creation of this new logistical infrastructure requires and outbound shop logistics, and for the major changes underway an investment of about €240 million in total, of which €170 million in retail sales that will affect the required solutions for in-shop and relates to replacement and €70 million to expansion of the present direct consumer distribution. For secured delivery PostNL has infrastructure. In 2011, €45 million has been spent (2010: 21). With specific solutions through Mikropakket. this investment, PostNL will be well equipped to deal with a growth in the parcels market of up to 40%. Small and home offices (SOHO) hold a special position in the business sender market. PostNL is dedicated to providing seamless Services and solutions accessibility of its network for these customers, for example by Fulfilment services equipping its 2,600 retail locations with a modern pay desk system For customers, parcel delivery is the last step in their solution chain. and rolling out online shipping modules. In order to better service customers throughout their entire value chain, PostNL has taken a position in the fulfilment of parcels International partnerships through TopPak. As a result, PostNL was able to target a number of PostNL operates a robust and efficient international network to customers offering them an integrated distribution solution from support and stimulate cross-border parcel deliveries and (reverse) 'pick&pack', including handling returns and warehousing. In 2011, logistics for its customers. The international parcels business of TopPak successfully handled the swapping of digital television PostNL integrates the resources, capabilities and technology of its decoders for a large customer in the Netherlands, including own organisation and its partners to design, build and run distribution, returns, packaging and relabelling. As the fulfilment comprehensive solutions across the supply chain. Such solutions market in the Netherlands is highly fragmented, PostNL is are supported by a central IT platform providing transparency and specifically targeting customers that require an integrated solution. visibility, while allowing performance measurement across the total supply chain. Transport solutions As part of the operational structure, PostNL operates a substantial Customers benefit from a flexible service proposition that offers the transport operation. The transport of all mail and parcel volumes best solution, both on a country-by-country and flow-by-flow basis. between the sorting centres, distribution depots, retail outlets and This allows them to fully focus on growing their core business. collection points of PostNL is being handled internally. Teaming up with these international partners also enabled PostNL Key financial results to develop a gateway to European solutions for intercontinental customers, including postal operators. Combined with efficient Operating income Parcels Year ended at 31 December 2011 variance % 2010 customs clearance for the whole of Europe, PostNL offers a cost- Total operating revenues 608 7.8 564 efficient delivery solution for freight and parcels into Europe. Other income 0 0 Total operating expenses (520) (7.4) (484) Operational developments Operating income 88 10.0 80 Underlying cash operating income 92 13.6 81 State-of-the-art logistics: new logistical infrastructure as % of operating revenues 15.1 14.4 To absorb future growth, PostNL is redesigning its logistical (in € millions, except percentages) operational infrastructure through the ‘New Logistical Infrastructure’ programme. Up until 2011, the company operated a ‘hub and spoke’ model with three large sorting centres and a countrywide network of depots. This proved, however, to offer limited flexibility in a rapidly developing market. 26 PostNL Annual Report 2011

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    Report of the Board of Management | Chapter 6 | Parcels Operating expenses Parcels Year ended at 31 December 2011 variance % 2010 Cost of materials 16 6.7 15 Work contracted out and other external expenses 345 13.1 305 Salaries, pensions and social security contributions 131 1.6 129 Depreciation, amortisation and impairments 9 9 Other operating expenses 19 (26.9) 26 Total operating expenses 520 7.4 484 (in € millions, except percentages) Operating statistics Parcels Year ended at 31 December 2011 variance % 2010 Domestic 101 6.3 95 International 5 5 Total 106 6.0 100 (in millions of parcels, except percentages) Parcels continued its revenue and volume growth in 2011. Revenues increased by 7.8% compared to 2010, of which Parcels Netherlands contributed 5.8% and other revenues contributed 2.0%. Organic growth in operating revenues was €43 million (7.6%). Acquisitions and disposals in 2011 had a net positive effect of €1 million (0.2%) on operating revenues. The organic growth was mainly realised within the Netherlands, Belgium and through Extra@Home. Volume growth within the Netherlands clearly benefited from the e-commerce trend as well as growth in B2B volumes, resulting in 6.0% overall growth in volumes. Volume growth was especially visible during the summer period and the fourth quarter of 2011. The overall trend in average revenue per parcel continued to be less favourable, mainly due to competition between service providers within the bulk segment and increased customer focus on delivery costs. The price pressure impacted revenues for -2.5%. Parcels’ operating expenses increased by €36 million in 2011 compared to 2010 following the growth in volumes. Work contracted out is the main contributor (€40 million), largely due to increased volumes and increased use of subcontractors. In 2011, the percentage of parcel volumes delivered by subcontractors increased from 85% to 86%. Salaries and social security contributions show an increase of €2 million. Higher pension costs included in this increase were partly compensated by tight control on personnel costs. Other operating expenses decreased by €7 million, mainly as a result of tight control on damages and costs. Underlying cash operating income increased by €11 million to €92 million (13.6%), mainly due to volume growth, further optimisation in the domestic parcel delivery network, increased efficiency due to the opening of two new depots (Waddinxveen and Elst) and tight control of overhead costs. PostNL Annual Report 2011 27

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    Report of the Board of Management | Chapter 7 7 International PostNL is active in three main European mail markets outside the Netherlands, and in cross-border mail. International overview strong experience to foster their specific market position amid consolidation. Opportunities in the European mail market In 2011, the postal market in 16 of the 27 EU countries was fully opened to competition under the EU Postal Directive. Although this On top of this, all countries can benefit from the knowledge and directive is aimed at enabling free competition, regulatory hurdles experience of operational experts in PostNL's home country, the for new entrants remain in most European countries. See chapter Netherlands. There is cooperation, for instance, in sorting, printing 17 for more details. and other technology knowledge-sharing. Prime Vision, a globally active subsidiary of PostNL in the Netherlands, is the partner selected by TNT Post UK for its postal automation programme. Despite regulatory barriers and declining mail volumes, PostNL continues to see attractive business opportunities outside the Netherlands. In 2011, PostNL decided to concentrate its European postal markets remain essentially local in character. The international activities in the countries that are most attractive from successes in the United Kingdom, Germany and Italy are driven by both a regulatory and a mail volume perspective: the United strong local management teams, with deep understanding of their Kingdom, Germany and Italy. Together, these countries have local markets. Based on operational structures that have much in around 130 million households, versus over seven million in the common, local products targeted at local market characteristics are Netherlands. Furthermore, these countries have a degree of being developed. For more details on the local market approach, liberalisation in which PostNL sees opportunities to grow, even see below. within current regulatory restrictions. Branding In all these countries, though officially liberalised, the original local In the Netherlands, TNT Post was rebranded to PostNL in May 2011. mail company still enjoys outdated regulatory advantages. In 2011, However, at the time of the demerger it was agreed with TNT PostNL had intensive discussions on value-added tax (VAT) Express that the activities outside the Netherlands would be exemptions, USO definitions and other privileges the incumbent rebranded more gradually. As a consequence, PostNL still operates has historically enjoyed. PostNL is dedicated to pursue a level under the name TNT Post in those countries. By 2014, the process playing field in each of the countries in which it operates. of rebranding is expected to be completed. Challenge strategy Cross-border mail PostNL believes it is well positioned to capture growth opportunities PostNL holds 67% in Spring Global Mail, the other 33% is held by in the three selected European markets. The international Royal Mail. Spring Global Mail is a global mail company offering businesses in each of these countries have been built from scratch cross-border mail distribution to businesses customers. Spring and have grown exponentially. Building these businesses from operates in 15 countries, and offers international mail services to scratch has allowed PostNL to design streamlined, efficient more than 200 countries. Through Spring Global Mail, PostNL has operations that can compete effectively. created a leading position in servicing international customers by enabling them to operate their businesses more efficient and cost- effective. PostNL is now the number two player in each of these three markets, leading the challenge against the incumbent postal operator. PostNL’s business approach and mentality are entirely United Kingdom customer-focused. The international businesses are constantly Market developments looking for growth in revenue and profitability, innovating and The postal market in the United Kingdom underwent considerable creating new services in order to quickly seize opportunities. structural changes in 2011, with a new industry regulator, Ofcom, taking control in October and the privatisation of Royal Mail Combining synergies with local customer approach receiving parliamentary approval in the summer. These Although market opportunities and regulatory room to manoeuvre developments have reinforced the efforts of TNT Post UK to ensure are different in each country, PostNL is approaching the countries that there is a level competitive landscape in the United Kingdom in which it operates using a model of sharing expertise and to enable competition with Royal Mail. experiences. Business developments In all countries, a hub-and-spoke model is the basis for the The business in the United Kingdom continued to grow strongly in operational structure. Experience gained in Italy from the Formula 2011, powered by operational excellence, customer focus and Certa service (see below for details) is being used in Germany and service and competitive pricing. There were some significant the United Kingdom. Conversely, the A/B delivery structure was customer wins in the utilities and banking sectors, supporting this initiated in Germany before being implemented in Italy. In business growth. TNT Post is the largest private postal company in downstream access, the United Kingdom and Germany share their the United Kingdom. 28 PostNL Annual Report 2011

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    Report of the Board of Management | Chapter 7 | International Currently, the business is fully downstream access, meaning that Germany TNT Post UK collects and pre-sorts mail before passing it to Royal Market developments Mail centres for final processing and local delivery to the end Last year was one in which long-running efforts to establish a level customer. Within the total mail market in the United Kingdom, playing field in postal competition showed further positive results. about 45% of all mail is downstream access. TNT Post UK is market Following a decision by the national regulator, the highest court in leader with a share of over 50% of the market. Germany concluded that Deutsche Post is not allowed to discriminate on price, thus introducing a price floor for Deutsche Volume growth slowed down in the second half of the year as Post and its subsidiaries. revenues were subdued by a significant price increase by Royal Mail, to which customers responded by cutting back on volumes. Business developments Also, the economic development in the last quarter of 2011 slowed In Germany – the biggest European economy and the second- down volume growth. largest European mail market in terms of volume – PostNL is the number two after incumbent Deutsche Post. PostNL has a 6% Customers and products market share. With its range of services and integrated networks, it Under the brand TNT Post UK, PostNL services its national and is able to serve all German households, either through its own last- regional customers. Furthermore, TNT Post UK has a dedicated mile operations, with delivery partners or through other networks, service for door-drop marketing, which delivers leaflets, flyers, such as Mail Alliance. In the market of consolidation services, coupons, brochures, catalogues, directories and samples in a PostNL is market leader through PostCon. targeted manner. The foundations were laid in 2011 for break-even in 2013. The Growth was stimulated by increasingly targeting small and business was thoroughly overhauled and all aspects were reviewed, medium-sized enterprises (SMEs) in 2011, taking the base to over refocused, restructured or resized. With the restructuring 8,000 customers in the year. programme, focus was strengthened on key businesses, key functions and key strategic regions. As a result, structurally loss- 2011 also saw the launch of the new packet and parcel product, making regions were exited. For the remaining strengthened offering a full range of standard postal packet products alongside regions, the transition was made towards an entrepreneurial model: differentiated courier solutions. The new UK and International local entrepreneurs were made responsible for local business. products generated revenue and market growth within the existing client base, but also enabled TNT Post to make notable wins within Additional cost savings were achieved in all entities. At the German the cosmetics, books and fashion goods sectors. head office, staff were cut by almost 50%, while overall headcount was reduced by 30%, through exits from activities in non-key Operational developments regions and ongoing restructuring processes. These activities and In 2011, TNT Post UK invested in innovative technology such as initiatives are crucial in driving the path to break-even. state-of-the-art sorting stations that help to streamline and automate sorting, and video encoding, which helps sort mail with Customers and products hard-to-read addresses. TNT Post UK also continued to invest in PostNL invested substantially in new products, services, sales and depots and machinery. tenders. By the end of 2011, PostNL had won 80% of all tenders for which it competed. For 2012, Germany is set to grow its business The company now has seven dedicated sorting centres across the and win new customers. United Kingdom, having opened new facilities in Leeds and Rugby in the last year. This has resulted in operational efficiency with In the key account segment, TNT Post KG takes over supply chain reduced transportation of mail across the country. management and manages digital sorting according to the specific delivery structures prior to printing, thus cutting out costly physical To support the predicted growth of unsorted packets, a new sorting sorting. It channels volumes for large customers in the telecom, process, equipment and software have been rolled out across all financial, mail order and other industries. In the course of the depots. This will help improve accuracy and capacity within the implementation of Germany’s secure De-Mail services TNT Post will network. Future growth will be supported by a planned increase in take up major roles in hybrid mail delivery. Cooperations with major the number of stations, software upgrades and additional floor players in this field are under negotiation and will come into effect, space. soon. This is a major step in business development for 2012 and beyond. For regional customers in key regions (such as Ruhr, Services and solutions Rhineland and Frankfurt), local end-to-end delivery services are TNT Post UK moved into packets in 2011 - an important new product offered. PostCon, with its 14 nationwide sorting centres, broadened line expected to grow, driven by developments in e-commerce. The its offering through cross-selling and combined products with the market in the United Kingdom is the world’s second largest market regional last-mile organisations. for e-commerce. With this packets service, TNT Post UK aims to benefit from that growth. Operational development After the reshaping of the German operations, the business model A further product development in 2011 was TNT Post UK’s Hybrid is founded on four pillars: it is a balanced portfolio bound by mutual Mail solution, which enables companies to save up to 60% on their interdependence. The pillars of Germany’s business model are mailroom costs. Offering both letter and postcard options, the national operations via TNT Post KG; last-mile operations for SMEs service is proving attractive to customers in the public sector. and local authorities via RegioService; consolidation and sorting PostNL Annual Report 2011 29

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    Report of the Board of Management | Chapter 7 | International services via PostCon; and system partnership for inter-regional PostNL thoroughly reviewed its business in Italy last year. The volumes via Mail Alliance. PostNL is co-founder and major unaddressed leaflet distributor business was sold in April 2011, the shareholder of Mail Alliance,which is an asset-free venture of 140 operations as a sub-contractor of Poste Italiane were definitively local partners, who provide one uniform logistics and clearing closed in May, and in September the Telepost mailroom activities system for the exchange of their inter-regional volumes. The were divested. business lines interact with each other, offering complementary services and partly sharing resources. Customers and products TNT Post Italia strengthened its position in the top segment of the Also in last mile, and alongside the fully-owned operations, PostNL business market: financial services companies, the telecom sector in Germany successfully follows a route of partnership with local, and large utilities. mainly publisher-based, mail companies. Under this approach, 18 mainly minority participations have been established over the last In addition, TNT Post Italia intensified its penetration in the small few years to foster PostNL’s presence in Germany. PostNL will and medium-sized enterprise (SME) and small office/home office continue to broaden its base with agreements made to participate (SOHO) markets on the one hand, and the public sector on the other. in renowned mail companies BWPost (Baden-Wurttemberg) and The development of Hybrid Office Mail and the Enterprise Portal Citipost Oldenburg (Lower Saxony). were specifically targeted at the SME and SOHO segments. Through Hybrid Office Mail, customers can log on to the TNT Post Italia Services and solutions website to send mail, buy cards or print via the TNT Post Italia In 2011, PostNL introduced additional hybrid mail products printing centre. The Enterprise Portal is a ‘virtual postal office’ where targeting SME customers – a further step to position the company customers can easily buy a wide range of TNT Post services, as a future-oriented service provider and paving the way to including single sign-on and online payments. Through the participation in digital substitution in this client segment, too. In establishment of this portal, the service to customers was improved. addition, the carbon-neutral '100pro Klima' product was marketed, proving PostNL’s sense of environmental responsibility. Further, TNT Post Italia is explicitly targeting the SME and SOHO markets. This is beginning to bear fruit: volume in these markets Italy grew with 28% compared to 2010. Market developments In 2011, mail volumes decreased substantially in Italy, mainly due Taking Formula Certa as a starting point, TNT Post Italia to the financial crisis. Large mail senders, mainly banks, reduced strengthened its a tax notification service, a specialised tax volumes and are rationalising their processes. communications distribution for Italian local governments. This is a step towards creating a position in the public sector. The launch of this service in the last two months of 2011 already resulted in new Business developments contracts for Formula Certa and tax notification services. TNT Post Italia has the ambition to be the key provider of customers' business communications needs through two main channels: Formula Certa, a certified mail service, and the printing operation, Operational developments which produces high-end, professional communications for The reorganisation of the operational structure, processes and IT business customers. The high quality level of Formula Certa, 97% platform, which started in 2009, was completed in 2011. A solid on time, is unique in the Italian postal market. structure and system is now in place that will sustain the business as growth and diversification continues. Some 65% of households are now covered by the network, which includes all the big cities, With Formula Certa, TNT Post Italia is also active in the registered the most important rural areas and the whole of certain regions mail market segment, the highest-value product in the postal such as Lombardy, Puglia and Sicily. market. In order to sustain its position in the registered letter mail market, TNT Post Italia entered into a cooperation with retail chain Buffetti (the main provider of office products in Italy) to open TNT Services and solutions Post Italia shops within Buffetti stores. This allows customers to pick In 2011, TNT Post Italia invested in full-colour printing. With this up TNT Post registered mail from a wide number of service points. investment, a growth opportunity was created against direct In 2011, 50 outlets were opened; the intention is to open some 100 competitors. With this step into full-colour printing, TNT Post Italia more in 2012. The ultimate aim is to have outlets in 300 stores in strengthens its market position, and is capable to offer print and Italy in order to reach national coverage for 75% of all households delivery solutions. within six kilometres. The investment and provider selection was carried out together As well as the cooperation with Buffetti, new business with the data and document management entity of Mail in the developments in certified mail include the launch of electronic Netherlands, thus creating synergies for PostNL as a whole. certified mail: a means of communication that looks like an e-mail but has the legal value of a registered letter. The market share of TNT Post Italia in the addressed mail market in Italy was around 8% in 2011. TNT Post Italia managed to grow, despite the financial crisis that hit Italy hard in 2011 and impacted overall mail volumes. 30 PostNL Annual Report 2011

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    Report of the Board of Management | Chapter 7 | International Key financial results Germany Adjusting for the effect of the changed invoicing method and Operating income International Year ended at 31 December 2011 variance % 2010 disposal effects, overall revenue decrease in Germany was 6%. The Total operating revenues 1,467 13.4 1,294 main reason for this decrease is the loss of national customers end Other income (3) 13 2010 only partly compensated by new customers. In 2011, Total operating expenses (1,473) (10.3) (1,336) Germany realised a strong yearly recurrent business improvement Operating income (9) 69.0 (29) as a result of restructuring and operational improvements, offset Underlying cash operating income 5 120.8 (24) by one-off restructuring costs. With the restructuring, operational as % of operating revenues 0.3 (1.9) improvements and the verdict of the highest court in Germany, TNT (in € millions, except percentages) Post Germany is well underway on its path to break-even in 2013. Operating expenses International Year ended at 31 December 2011 variance % 2010 Italy Cost of materials 32 6.7 30 In Italy, Formula Certa continued to grow, resulting in 17% volume Work contracted out and other growth. In the last two quarters of 2011 volumes from the financial external expenses 1,140 16.8 976 sector were under pressure due to the financial crisis. Coverage of Salaries, pensions and social security Formula Certa reached around 65% of households. Operating contributions 230 (5.3) 243 income was positive and increased due to the volume growth of Depreciation, amortisation and Formula Certa and the disposal of loss-making business. impairments 11 (45.0) 20 Other operating expenses 60 (10.4) 67 Spring Total operating expenses 1,473 10.3 1,336 Within Spring Global Mail, revenue decreased by 3% compared to (in € millions, except percentages) 2010, mainly due to the loss of a global customer, which was only partly offset by growth in the United Kingdom, Asia and Germany. Revenues in International grew by €173 million or 13.4% to €1,467 Operating income remained negative in 2011. million in 2011 compared to 2010. Adjusting for €144 million from the changed invoicing method in Germany, €64 million disposal effect and €8 million downward exchange rate impact, organic revenue increase was €101 million or 7.8%. The changed invoicing method is a result of a change in the regulatory environment (primarily related to VAT) and changed the billing and accounting of agency fees to gross revenue of customer contracts. International operating expenses increased by €137 million (10.3%) in 2011 compared to 2010. Work contracted out increased by €164 million, of which € 144 million was offsetting extra revenues from the changed invoicing method in Germany. Costs of salaries and social security contributions decreased 5.3% in 2011. Depreciation, amortisation and impairments decreased by €9 million, mainly due to an impairment of intangible assets on Spring Global Mail in 2010. Underlying cash operating income improved €29 million to a positive result of €5 million. The improvement related to an amount of €3 million for disposal effects, the remainder was due to good performance in the United Kingdom of the addressed business, operational improvements and cost savings in Germany and volume growth of Formula Certa in Italy. United Kingdom In the United Kingdom the downstream access business growth slowed down during 2011, mainly as a result of a Royal Mail price increase of approximately 10% to 15%, which took effect in May 2011. Further pressure on revenue came from a shift of customers to the premier product and the fact that the growth in volumes was in managed services whereby PostNL only recognises net revenue and not the Royal Mail portion. Revenue in the United Kingdom grew with 13%. Operating income was positive and increased compared to 2010. PostNL Annual Report 2011 31

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    Report of the Board of Management | Chapter 8 8 Mail Other Mail Other comprises various head office and shared service activities and activities that are classified as held for sale. Mail Other reports central and non-allocated costs, including the difference between the recorded IFRS employer pension expense for defined benefit plans for the PostNL group and the actual cash payments received from other segments and Express for the period January up to and including May 2011. Mail Other overview Segmental overview defined benefit plans Transitional and The head office costs include Board of Management and Main pension plans other plans Total plans shareholder costs, demerger expenses and rebranding costs. Expenses Cash Expenses Cash Expenses Cash The shared services relate to finance, purchasing, human Mail in NL 100 100 79 103 179 203 rescources and IT. These costs are charged to the other segments Parcels 14 14 9 6 23 20 and reported as internal revenues. The activities classified as held International 1 1 3 5 4 6 Mail other 24 24 7 7 31 31 for sale represent unadressed activities in Belgium, Italy and Total Eastern Europe. In April 2011, the sale of De Belgische segments 139 139 98 121 237 260 Distributiedienst and RSM Italy was completed, resulting in a book IFRS gain of €38 million and cash proceeds of €116 million. In August difference (120) (120) 2011, the disposal of the activities in Czech Republic and Slovakia Total 19 139 98 121 117 260 was completed. (in € millions) Key financial results In 2011, the total IFRS expenses for defined benefit plans as Operating income Mail Other recorded in the segments and Mail Other amounted to €237 million Year ended at 31 December 2011 variance % 2010 (2010: 147). In Mail Other a benefit is recorded of €120 million (2010: Held for sale 47 124 189), being the difference of the recorded expenses in all segments Non-allocated 238 221 and the overall IFRS pension expense of €117 million (2010: -42) of Total operating revenues 285 (17.4) 345 the PostNL group. The net pension benefit of Mail Other of €89 Other income 39 (2) million was €75 million lower than last year (2010: 164). Excluding Total operating expenses (220) (115.7) (102) the pension contribution of TNT Express and the pension Held for sale 40 10 curtailment gain, the underlying net pension benefit was €35 Non-allocated 64 231 million lower than last year. Total operating income 104 (56.8) 241 Underlying cash operating income (31) (675.0) (4) as % of operating revenues (10.9) (1.2) Total operating income for Mail Other amounted to €104 million (in € millions) (2010: 241), which related to shared service centre and head office activities for an amount of €64 million (2010: 231) and to assets Operating revenues of €285 million (2010: 345) relate to shared classified as held for sale for an amount of €40 million (2010: 10). service centre and head office activities that were charged to the The decline in operating income of €137 million is mainly explained underlying segments for an amount of €238 million (2010: 221) and by lower non-recurring and exceptional items and the decreased operating revenues of assets held for sale for an amount of €47 underlying pension benefit. million (2010: 124). The latter included €29 million (2010: 103) for De Belgische Distributiedienst, €9 million (2010: 3) for RSM Italy In 2011, non-recurring and exceptional items amounted to €12 and €9 million (2010: 18) for Eastern Europe. million and consisted of the book gain on the sale of De Belgische Distributiedienst and Italy’s unaddressed activities (€38 million) Other income of €39 million (2010: -2) related to the book gain from and the pension contribution of TNT Express (€5 million), partly the sale of De Belgische Distributiedienst, RSM Italy and Eastern offset by one-off demerger and rebranding costs (€31 million). In Europe. 2010, non-recurring and exceptional items amounted to €96 million and consisted of the profit pooling arrangement with Express (€41 million), the pension contribution of TNT Express (€25 million), a Operating expenses increased by €118 million to €220 million in pension curtailment gain (€20 million) and a release of a provision 2011. This increase is mainly caused by lower non-recurring and for claims (€10 million). exceptional items of €84 million and a decreased underlying pension benefit of €35 million. Underlying cash operating income for Mail Other amounts to -€31 million (2010: -4). The decrease of €27 million mainly resulted from A reconciling overview of recorded pension expenses in the lower operating income from assets classified as held for sale, segments and Mail Other is presented in the table. All segments higher cash out for pension contributions, higher cash out from record the cash contribution paid for their active participants in the provisions and higher costs for corporate functions and advisory Dutch main pension plans towards the sponsoring employer fees. PostNL N.V. as pension expenses. For the transitional plans, all segments record the IFRS pension expenses. 32 PostNL Annual Report 2011

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    Report of the Board of Management | Chapter 9 9 Employees With over 65,000 employees PostNL is the largest private employer in the Netherlands. Around 80% of PostNL's costs are labour related. PostNL people are the heart of the company. It is thanks to the dedication of its employees that PostNL is able to be a high quality service provider with the goal of keeping customer satisfaction at a high level and improving where possible. Detailed figures on employees can be found in chapter 19 and 20. A people company where operational staff of PostNL are likely to find a new position, and organises events where candidates can meet employers, under Due to the growing digitisation and liberalisation of the postal the name 'Baan zoekt Medewerker' (Job Seeks Worker). markets strategic plans were developed and implemented to prepare the PostNL organisation for the future. These plans affect all parts of the organisation and as such all employees. In general In addition to the Mobility activities and agreements with the unions the plans aim to meet the changing market demand, reduce costs on job creation, PostNL and Randstad Tempo Team initiated the and improve flexibility, which leads to operational restructuring Job Company (‘Banenbedrijf') to offer employees a practical way programmes. However, the restructuring has consequences that to find a new job. PostNL employees made redundant due to the are demanding for the employees. PostNL strives to be accountable restructuring of the company’s operations will be offered an income to its employees by offering programmes to support its surplus of guarantee and the prospect of a permanent job elsewhere. employees in finding a new future outside PostNL. PostNL sees these initiatives as an essential part of fulfiling its For the employees at PostNL, the new organisation may be responsibility towards its employees by supporting them in coping demanding, and jobs and responsibilities may change. Dedicated with the consequences of the reorganisations. training and development programmes are in place to equip people during this change. Employee motivation is monitored, followed by New part-time workforce action plans in order to keep the workforce motivated to continue With the move from a model of a mainly full-time operational delivering the high quality services that customers expect. To retain workforce to one of mainly part-time staff, a new type of employee PostNL's position as an attractive employer for talented employees, enters PostNL. Mail deliverers pick up their mailbags from a dense it has management development programmes and promotion network of depots, often within walking or cycling distance from opportunities in place. their homes, and deliver mail in their local neighbourhood. They can combine this work with other employment, study, leisure or PostNL recognises the importance of its employees. All employees family activities. are valued, regardless of ethnicity, gender or sexual orientation. Human resources management is embedded in all strategic This new structure creates jobs for people who might otherwise business decisions, including having the director Group Human struggle to find work, such as mothers re-entering the workforce, Resources as one of the four members of the Board of Management creative professionals who need fixed income and pensioners who and having an HR director in each of the three segments. wish to remain physically active. By 2013, PostNL expects to employ more than 30,000 staff who combine their work as a mail deliverer Responsible redesign with other activities, next to 10,000 staff working in the new preparation locations. In 2011, over 17,000 mail deliverers were In many parts of the organisation, operational redesigns and employed. A dedicated organisation was set up to recruit and reorganisations were implemented that have an impact on people. connect these new PostNL employees through a marketing Parts of the head office, smaller entities and the entire German campaign, social networks and other modern communications organisation were reviewed. The most significant change, that was media. prepared for in the years 2010 and 2011, is the full redesign of the operational structure of Mail in the Netherlands as described in Training for new positions chapter 5. This affects the entire organisation, and means that the While the redesign in the Netherlands makes staff redundant, it also jobs of 11,000 operational staff will disappear. As these emotional significantly changes other positions at PostNL. Those employees changes affect some of the most loyal and long-serving employees, whose jobs are changed by the restructuring are trained and PostNL is doing its utmost to help them ‘from work to work’. coached to ensure they are well prepared for their new roles. Work to work accompaniment In 2011, much effort was invested in the development of the Since the middle of 2006, PostNL has been trying to help the functional training programmes as part of the operational redesign. affected employees find new jobs through its Mobility (assisted Craftsmanship is the key word and the active participation of line voluntary re-employment) programme, which has guided over management is one of the success factors. Together with internal 5,800 employees from work to work over the years. Through six stakeholders, a differentiated and modular training programme mobility centres, employees are supported in their search to find a was designed for management and staff in the various parts of the new job outside PostNL. This support includes workshops, training new organisation. and outplacement. Specialised job coaches are available to support candidates in finding a suitable new employer and preparing for job interviews. The Mobility organisation has contacts with branches PostNL Annual Report 2011 33

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    Report of the Board of Management | Chapter 9 | Employees Reduction of the Dutch head office plans were implemented and monitored and updated using the As mail volumes decline and PostNL faces a difficult financial outcome of the new survey where appropriate. Teams discuss their situation, the support staff will be subject to cost savings and progress on a regular basis. efficiency programmes. As a result, a new programme was initiated to further reduce head office costs in 2011. Recognition PostNL aims to reward its employees for performance according to Restructuring in Germany market practice and acknowledges that recognition and reward is In execution of measures on the path to break-even in 2013 in not solely a financial issue. For this purpose, the internal Master Germany, Regioservices exited loss making regions that had no Awards are organised annually. The Master Awards seek to: stand-alone turnaround perspective. The reorganisations accompanying this led to a staff reduction of over 1,500 employees • pinpoint the long-term impact of business decisions, within a very short timeframe. • identify, celebrate and share best practices throughout the organisation, and Wherever possible, jobs were secured by selling businesses as • encourage continuous improvement and innovation in the going concerns to other parties. If no other options existed, pursuit of business excellence. responsible closing of regions was carried out with a social plan and mobility training offering support to staff. In 2011, the results of the 2010 Master competition were announced. The Master Award for sustainability was won by the Engagement Real Estate department, for the design and implementation of the first CO2 neutral operation principle. Employee engagement Engaged employees form the core of PostNL and enable the company to provide high quality services day after day. PostNL is Given organisational changes during 2011 it has been decided to convinced that engaged employees will lead to satisfied and loyal postpone the competition untill 2012. customers. Works Council 2011 was again a year of great turbulence within PostNL. The In 2011, PostNL continued its constructive and intensive demerger of the Express activities, rebranding TNT Post into PostNL discussions with the Works Council, as one of its important and the operational restructuring of Mail in the Netherlands, stakeholders. The works council is closely involved in the changes Parcels, Germany, Italy and at head office were important issues that the organisation, and its employees in particular, are going management and employees had to deal with. In the midst of these through. In 2011, the chairmen of the works councils of all entities challenges, the annual VOICE engagement survey was conducted. were consulted on these changes, including the consequence for All employees of PostNL, with the exception of Germany, were the works council itself. This has led to a strong foundation for a new invited in September to participate in the survey. Germany was set of works council regulations, that will enable them to continue excluded because of the fundamental restructuring of the to fulfill their role with the same high quality as before. organisation during the period VOICE was held (see chapter 7). Investors in People certification The overall response rate of VOICE was 36%.There was a small Investors in People (IiP) sets the minimum criteria for continuous increase of overall employee engagement from 55% in 2010 to 56% management and employee development. Meeting this standard in 2011. On average the scores on all themes that were measured ensures that employees receive the necessary attention and remained stable. PostNL sees this as a positive outcome given the opportunities for development, which enables them to be current business and social challenges, but also acknowledges it is successful and thus create value for PostNL. Each year, progress a result with room for improvement. evaluations are held with employees, with a focus on their performance, behaviour and personal development. The IiP certification as a percentage of the total people working in certified The results show that the company's key strengths are still present. sites in 2011 increased to 96% from 95% in 2010. Employees understand the strategy of the company and believe that the targets and goals help them to provide excellent service to their customers. The relationship with direct managers is perceived Training and development as being strong and working together as a team is valued. PostNL recognises that having skilled and motivated staff is key to achieving results and success. Building on this, employees are given To improve the less favourable results of the survey, PostNL will the possibility to develop themselves. In 2011, an expert team continue to focus on: Training & Development was made responsible for the development of an integrated Training & Development Policy as • good and effective cooperation between teams and well as orchestrating the development and implementation of all departments, training and development activities, including evaluation and • improving visibility and accessibility of the training and reporting. development activities within the organisation, • improving the follow-up on the results of VOICE. Development opportunities for staff in the Netherlands are available via the intranet and are managed in a Learning Each year, teams make their own action plan to improve on the Management System. In developing and executing the courses, results of the VOICE survey. In 2011, the results of the 2010 action their contribution to PostNL’s strategy is the starting point. PostNL 34 PostNL Annual Report 2011

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    Report of the Board of Management | Chapter 9 | Employees offers a variety of programmes focusing on functional and Diversity and inclusion organisational excellence, personal development and career Diversity policy development. Everyone who qualifies for a job should feel welcome at PostNL, regardless of their gender, ethnicity or sexual orientation. Professional development of staff Moreover, PostNL believes that diversity in its workforce and its PostNL has a framework of career development programmes in management is good for the organisation, as it stimulates creativity place that are compulsory for qualified staff. Resource committees and leads to better decision making. Diversity and inclusion are key are in place, responsible for selecting course participants. The in- to PostNL. company programmes are geared to develop leadership, competencies and business know-how in four phases. Multicultural organisation Employees are a mirror of the environment PostNL operates in, For graduates, the Young Executive Programme (YEP) exists. particularly in operations but also increasingly in head office. The Young potentials are trained to use their acquired knowledge and workforce of PostNL, and primarily its operational workforce, is skills to perform well in their role. In the second phase, aimed at multicultural. That's why PostNL places strong emphasis on potentials with at least three years of work experience, the course diversity and inclusion in the workplace. Operational managers are objectives are aimed at completing a job with the help, knowledge trained in working with staff from other cultural backgrounds and skills of other people. Phase three includes the Mastering Your through a multicultural masterclass, and PostNL is actively looking Leadership Programme (MYLP) and is all about leadership for talented managers from all cultural backgrounds. To this end, development. Phase four is aimed at higher-level management, PostNL cooperates with specialised partners such as Young Global and includes tailor-made programmes. People and the Moroccan-Dutch Leadership Institute. As the world changes continuously, so does the development of Ramadan is a good opportunity to show the relevance of professionals. For PostNL it is important to recruit and retain multiculturalism to the organisation. PostNL pays attention to this professionals that excel in their jobs. It is also important to have a in its internal media. PostNL Unity, the company's multicultural development curriculum in place in order to recruit talented employee network, actively seeks cooperation with management professionals. and HR to address cultural issues and stimulate awareness. In 2011, development programmes for HR and Marketing & Sales Female talent professionals were designed in cooperation with management and Each year, the YEP programme attracts an even share of female representatives of the target groups, and a new programme for and male potentials. Still, in higher management positions, men are Finance and Management professionals was introduced. The more represented. PostNL welcomes talented women to higher transfer of knowledge is managed by internal professionals where positions, and actively seeks the promotion and sponsoring of possible, supported by training agencies. female talent. The employee network PostNL WIN deploys, with management and HR, activities aimed at stimulating the In addition to the programmes described above, PostNL offers its development of talented women, creating awareness of hurdles in employees a series of skill- and competency-related training the organisation and helping both management and employees to opportunities, through courses, e-learning or coaching. Personal overcome these hurdles. coaching is an effective means of personal development. That is why PostNL developed an internal coaching platform, consisting of Each year, 20 talented women are mentored by a director (male or qualified staff specifically trained to be an internal coach. The female) to help them reach their career goals. Further, the network coaching is result-driven and always work related. organises workshops and intervision sessions around specific issues, such as self promotion and work-life balance. Internal promotion PostNL believes that stimulating the development of employees Respect on the workfloor leads to more engaged and better motivated people, while also Even today, and even in the relatively liberalised countries in simultaneously developing future managers. In 2011, managers Western Europe that PostLNL is active in, it is not always natural for received a performance management training to help them lesbians and homosexuals to be be open about their personal lives. improve the performance of their teams. Fearing negative reactions from their colleagues, one third still do not speak out. PostNL believes that people perform best if they can Annually, talent reviews are held to identify potential managers and be who they really are on the workfloor, and don't have to hide their talented professionals. Directors and managers evaluate the private life, and actively promotes respect in the workplace. PostNL development of their staff regularly, discussing career steps on an has signed the 'Declaration of Pride', and visibly sponsors activities individual basis. With this procedure, PostNL aims to improve through the PostNL Pride employee network. development of its people, and stimulate internal growth and promotions. Expertise is only obtained externally when no qualified Health and Safety candidates are available within PostNL. Health and Safety With the majority of employees working outside company facilities while delivering post and parcels, health and safety is an important topic for PostNL. PostNL employees drive over 30 million kilometres per year by vehicle and walk and cycle many million kilometres. PostNL Annual Report 2011 35

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    Report of the Board of Management | Chapter 9 | Employees Traffic accidents are therefore inevitable. PostNL has policies and procedures in place to avoid accidents, including drive safe programs. Despite these efforts, PostNL unfortunately had to experience three fatal accidents in 2011. PostNL regrets this, and does everything in its power to avoid this in the future. OHSAS 18001 forms the base of PostNL's health and safety policy. It sets the minimum health and safety standards for PostNL’s operations and creates a platform for ongoing work-related health and safety performance improvements at entity level. This allows local focus and ownership for monitoring and implementing these improvements. In 2011, the percentage of total FTEs working in OHSAS 18001-certified sites increased to 95% from 94% in 2010. Absenteeism Absenteeism stabilised in 2011, with short-term absence decreasing but long-term absenteeism remaining relatively high. This is partly reflected by an elevated average age for Mail in the Netherlands, which is the majority of PostNL. The main focus is on combating short-term absenteeism, given the difficulty to influence long-term absenteeism. PostNL stimulates absent employees towards a safe and timely return to work. A ‘return to work’ interview is held as an open discussion about the employee’s absence. Its purpose is to establish whether management is able to support the employee and improve the situation. In many cases the employee’s return to work is also closely monitored by a certified medical practitioner. Several healthy lifestyle initiatives were organised for employees during 2011. These initiatives include health checks, a 'week of healthy living' and the provision of healthy food in the company restaurants. Absenteeism as a percentage of total working days remained stable in 2011 at 5.4%. 36 PostNL Annual Report 2011

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    Report of the Board of Management | Chapter 10 10 Corporate responsibility, strategy and performance summary PostNL has been delivering mail for the past 200 years, and during that time corporate responsibility (CR) has increasingly become a way of life within the company, embedded at every level, and central to interactions with internal and external stakeholders. PostNL’s ambition is to be a responsible leader by going beyond managing the impact of the business on society and the environment. CR Strategy As a solid foundation to PostNL's CR activities, it follows several globally-recognised management standards across the company. The Board of Management (BoM) of PostNL has created a CR These are: Committee (CRC), which acts as a sounding board in giving strategic advice and sharing expertise, bringing emerging issues, policies and trends that could impact PostNL to the attention of the BoM. In • OHSAS 18001, for safety in the workplace, order to improve the integration of CR within the business, CRC • Investors in People (IiP), for the personal growth of employees, members are primarily senior business managers − as well as a • ISO 9001, for the quality of work, and member of Young PostNL, the network for high potential, entry- • ISO 14001, for environmental management. level employees. Benchmarks in CR against others in the industry are used to help PostNL focus on activities in order to maintain its leading position: CR strategy PostNL • PostNL was awarded Supersector Leader for Industrial Goods and Services in the 2011 Dow Jones Sustainability Indexes 4 (DJSI). PostNL is included in the DJSI Europe and DJSI World rankings, comprising 342 companies that represent the top 10% Corporate of leading sustainability companies, responsibility • PostNL gained a number two ranking in the International Postal Corporation benchmark on CO2 efficiency, 1 3 • PostNL obtained a number five ranking in the Transparency benchmark organised by the Dutch Ministry of Economic Affairs, Employees Environment Agriculture and Innovation. Corporate responsibility performance in 2011 PostNL continued the integration of CR into the existing business systems, including the financial planning and control cycle, during Stakeholders 2011. PostNL continued the dialogue with stakeholders, in order to review the CR strategy and results and to better understand 2 stakeholders’ perspectives and concerns regarding the risks and responsibilities resulting from operations. For more detailed information about PostNL's CR performance in 2011, please see chapter 19 of this report. PostNL’s CR strategy revolves around four areas where it can draw on its specific expertise and experience to really make a difference. These areas were identified based on the most material aspects for Employees PostNL as discussed during former multi-stakeholder dialogues: As described in chapter 9, employees form an important stakeholder group for PostNL. Employee engagement is important 1 employees, for PostNL as engaged employees enable PostNL to maintain and 2 stakeholders, such as customers, shareholders, subcontractors improve customer satisfaction. and suppliers, 3 environment, and Managing absenteeism and preventing accidents and fatalities 4 social responsibility. from operations are the twin focus areas as far as health and safety are concerned. Various initiatives are implemented with the aim to prevent fatalities. These initiatives include assessments of the safety risks of all new/changed processes and focusing more intensely on safe driving behaviour, as well as ongoing efforts to maintain an PostNL Annual Report 2011 37

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    Report of the Board of Management | Chapter 10 | Corporate responsibility, strategy and performance summary acceptable level of work pressure so as to minimise safety risks in In 2011, a structured CO2 management process was deployed to the workplace and in traffic. translate the 2020 CO2 efficiency target into tangible action plans at the operational level. Detailed action plans concerning CO2 Regarding absenteeism, the focus is on short-term absenteeism on impact and budgetary requirements are linked to standard which management attention has the biggest influence. Long-term processes to ensure implementation at the core of the business. absenteeism is mainly impacted by the elevated average age of This process provides the basis for planning, tracking and rewarding staff, primarily in Mail in the Netherlands. Absenteeism stabilised the implementation of CO2 efficiency improvement actions. in 2011 at 5.4%, with short-term absence decreasing but long-term absenteeism remaining relatively high. Besides technological solutions to improve operational performance, the focus is on managing CO2 emissions by Stakeholders encouraging behavioural change. Engaging employees is key to the implementation of an effective CO2 strategy. Two distinct For customers, social and environmental responsibility come groups need to be targeted: management (to create role models together in product innovations such as Groene Post (Green Post), and build credibility) and drivers (to sensitise them to fuel-efficient which enables customers to offset the CO2 impact of their mail. The driving behaviour, ensure acceptability and provide advice and Stichting Milieukeurmerk Post, a chain-wide foundation that sets technical solutions). sustainability criteria in areas such as paper use and processing, is supported by PostNL. PostNL launched two new initiatives in 2011. For 2011, PostNL’s CO2 efficiency index was 64.5, compared to 70.4 The introduction of Folders.nl, a digital version of the 12 billion in 2010. This is in line with the aim to reach a CO2 index of 45 in 2020. unadressed retail-related brochures delivered to Dutch households The main cause of the 2011 decline was the decrease in CO2 every year and entered a partnership with the paper and package emissions of buildings. The three components of the CO2 index industry relating to the use of environmentally friendly paper. (buildings, small trucks and large trucks) are weighted based on their absolute CO2 emission in 2007. The decline in buildings Suppliers and subcontractors are vital links in the business chain. emissions overcompensates the relatively small increase in small By acknowledging responsibility in the supply chain, PostNL clearly and large truck emissions, which leads to a decline in the CO2 index connects PostNL’s CR strategy to the business strategy. The for 2011. outsourced volumes to subcontractors are increasing. A subcontractor strategy was developed and implemented in 2011. Because of actual and future changes in the relative composition As part of this, special programmes to encourage subcontractors of its structure, with growth in Parcels and International and a to drive safely, efficiently and in an environmentally-friendly decline in Mail in NL, PostNL will reconsider the comparison of the manner have been established. CO2 index in 2012. CR aspects are part of PostNL's dealings with suppliers. By PostNL actively participates in the International Post Corporation professionalising its procurement processes, PostNL has become (IPC), which aims to cut the global postal sector’s carbon emissions one of the top players in terms of sustainable procurement by 20%. PostNL is number two on the IPC CO2 benchmark. standards. Green innovations Environment In order to cut CO2 emissions further, innovative experiments have Reducing (relative) carbon dioxide (CO2) emissions related to its been started, such as using boats and bicycles to deliver parcels, fleet and buildings is the cornerstone of PostNL's environment which also helps to reduce inner city congestion. The Parcels strategy. segment uses biogas as fuel for vehicles and electric cars and the possibilities of driving on green electricity are being piloted. With The provision of accurate and timely CO2 data is a key requirement the establishment of the Auto unit, smaller vehicles have been for effectively managing CO2 performance. A monitoring and introduced, which helps to improve CO2 efficiency. reporting system is in place that provides operating units access to accurate information on CR performance, including CO2 metrics. Flexible working has been introduced for administrative staff, for example in PostNL’s head office in The Hague. This stimulates more The CO2 target is set on the CO2 efficiency index. The index combines effective use of the office space by introducing open areas. As an the operational performance of core operational activities, road added social benefit, it also improves cooperation among transport and building operations into one indexed metric. The colleagues and contacts between managers and staff. Flexible index uses 2007 as the baseline (2007 index = 100). working also helps to reduce traffic jams and pollution by encouraging working from home. In 2010, TNT (Mail and Express) announced an ambitious target, which included that PostNL (the former TNT Post) strives to Social responsibility improve its CO2 efficiency index by 55% by 2020, compared with For PostNL, CR goes beyond dealing responsibly with employees, the 2007 baseline. In 2011, PostNL reviewed the CO2 target for its stakeholders and the environment. PostNL is also looking for other business to align with this long-term target. In order to monitor CR ways to bring CR to life. This is done through its partnership with the performance, quantitative targets have been set, which are United Nations World Food Programme (WFP). included in management contracts. 38 PostNL Annual Report 2011

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    Report of the Board of Management | Chapter 10 | Corporate responsibility, strategy and performance summary PostNL is committed to supporting WFP in its efforts to meet the number one Millennium Development Goal: to end poverty and child hunger by 2015. Both parties benefit from this partnership: WFP benefits from the knowledge, skills, resources and donations provided by PostNL, while PostNL benefits from increased employee engagement and employee and management development. Outlook 2012 For 2012, PostNL will concentrate on the following programmes: • Mobility activities will be continued to help employees who have lost their jobs due to reorganisation programmes to find a job outside PostNL. • PostNL places strong emphasis on diversity in its workforce and management. PostNL will therefore continue to focus on quality, talent and composition of its workforce and management. • As a logistics service provider, CO2 reduction remains important for PostNL. As well as efficiency measures, we continue to track new technology, which we will implement as soon as there is a business case. PostNL Annual Report 2011 39

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    Report of the Board of Management | Chapter 11 11 Risks The development of PostNL’s business strategy and the supporting financial and corporate responsibility strategies are not without risk. The Board of Management is convinced, however, that risks are manageable as they are based on PostNL’s core strengths. PostNL’s risk management framework has been designed to The risk responses as described are meant to provide a high-level identify and prioritise key risks and to develop appropriate risk overview of possible and initiated action points in response to the responses. This framework is in line with the Enterprise Risk risks identified and are not to be interpreted as a limitative list of risk Management (ERM) – Integrated Framework of the Committee of responses within PostNL. Understanding strategic, operational, Sponsoring Organizations of the Treadway Commission (COSO) compliance and financial reporting risks is a vital element of PostNL and the Dutch Corporate Governance Code. management's decision-making process. PostNL’s risk management and control programme is to be considered as a This chapter outlines the key risks and risk responses to PostNL’s process to further support management. No matter how strategic, operational, legal, regulatory and financial objectives. comprehensive a risk management and control system may be, it cannot be assumed to be exhaustive, nor can it provide certainty that it will prevent negative developments in PostNL’s business and PostNL’s management reviewed the risk profile regularly business environment from occurring or that its risk responses will throughout 2011 and will continue to do so during 2012. For those be fully effective. It is important to note that new, unknown and/or risks deemed to be material, comprehensive risk response plans are unforeseen risks may be identified and/or occur. PostNL will react developed and reviewed by the Board of Management. to changes in its risk profile and/or risk responses with due care and will continuously analyse possible alternatives that may be All operational units are engaged in a comprehensive risk included in its risk management and control framework. identification process. The outcome of this process is reported to Notwithstanding the above, any of the following risks could have a the relevant Group and functional management, and is shared and material adverse effect on PostNL’s financial position, results of discussed with the Supervisory Board and the audit committee of operations, liquidity, solvency and the actual outcome of matters the Supervisory Board. referred to in the forward-looking statements contained in this annual report. The risks described in this chapter cover the key risks to the PostNL businesses. However, it cannot be considered as a limitative list of risks. 40 PostNL Annual Report 2011

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    Report of the Board of Management | Chapter 11 | Risks Risk Risk response Strategic risks Exit certain businesses or markets PostNL may decide to exit certain businesses or markets in the future, The decision to exit, if contemplated, is reviewed by the Board of which could result in additional costs related to closure of operations, Management and the Supervisory Board, after which, if approved, an impairment of goodwill or other contractual liabilities. exit plan is made to limit the (financial) impact for relevant stakeholders involved. USO regulation As designated provider of the Universal Postal Service, changes in PostNL is in a continuous dialogue with governmental decision USO regulation could have an adverse impact on PostNL’s ability to makers and regulators to enhance its position as designated provider. adapt in a timely and effective way to market developments and changes in customer demand. Substitution The increasing substitution of alternatives for PostNL’s delivery Commercial initiatives are continuously and consistently taken to services could reduce revenues and profitability. slow down or adapt to substitution. Furthermore, operational processes are developed to more flexibly adapt to future volume decreases. Competition Competition may put downward pressure on prices, which could have Commercial initiatives such as differentiation in service levels, an adverse effect on PostNL’s revenues and profitability. products and adequate pricing are in place. Operational risks Execution of Master Plans Measures taken to reduce costs, including employee redundancies, Master Plan projects are executed by an adequate programme may be delayed and/or may not achieve the results intended, could management organisation and are monitored continuously. cause labour unrest or a deterioration in quality of services and/or Mechanisms to adjust to changing circumstances are in place. products, and could adversely affect PostNL’s reputation, revenues and profitability. Legal and regulatory risks Self-employed status of subcontractors A change in the self-employed status of subcontractors across some PostNL is continuously monitoring developments in this area and is, European countries due to changes in labour laws and regulations where opportune, in dialogue with the authorities to reach or maintain could impact operating expenses and reduce profitability. agreement on the status. Furthermore, PostNL agrees upon relevant contractual terms and conditions with its subcontractors in order to comply with these developments, where necessary. Misconduct Employee and even (sub)contractor and supplier misconduct could PostNL has implemented a robust Integrity programme intended to result in financial losses, the loss of customers and the payments of protect the company against risks relating to misconduct. monetary penalties or other sanctions imposed by the national and local governments (and other regulators) of the countries in which PostNL operates. Besides these actions, misconduct might harm PostNL’s reputation. Legal and regulatory requirements PostNL is confronted with complex legal and regulatory requirements PostNL implemented appropriate policies, processes and in the countries in which it operates. These include but are not limited procedures, which limit the exposure with respect to complex legal to tariff regulation, competition and postal law requirements. These and regulatory requirements. regulatory requirements may increase given the expanding scope of work of regulatory authorities (e.g. OPTA, NMa). Failure to comply with the requirements may have a material adverse effect on business operations and on PostNL’s revenues and profitability. Financial risks Retained stake in TNT Express Following the demerger, PostNL holds a retained stake in TNT Express Ongoing monitoring of TNT Express’ share price and business N.V. In 2011, PostNL had to write down its retained stake by €636 performance in order to optimise the value of the retained stake in million. Due to the current volatile capital markets and business TNT Express. performance of TNT Express, additional impairments on the retained The distribution of cash dividend has been postponed. Payout of cash stake may occur. As a consequence, PostNL’s equity and funding dividend is linked to the level of consolidated equity and certainty of position could be negatively impacted and this could hinder the the BBB+/Baa1 credit rating. payout of (cash) dividend. PostNL Annual Report 2011 41

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    Report of the Board of Management | Chapter 11 | Risks Risk Risk response Financial risks (continued) IAS 19R implementation A combination of implementation of the revised IAS 19R on 1 January The distribution of cash dividend has been postponed. Payout of cash 2013 and volatile capital markets may result in a significant write- dividend is linked to the level of consolidated equity and certainty of down of the current pension asset, impacting PostNL’s equity. the BBB+/Baa1 credit rating. As a consequence, PostNL’s equity position could be negatively impacted and this could hinder the payout of (cash) dividend. Additional funding to pension funds due to drop in coverage levels The coverage ratios of the defined benefit pension funds in the PostNL intensively reviews the development of the funding Netherlands could drop below the minimum required levels. requirements and coverage ratios of the pension funds. A downturn in the capital markets and/or a decline in interest rates The pension funds and the unions have been invited to come to a may reduce the coverage ratios, which could result in multi-year mutual agreement on how the funding exposure of PostNL could be additional funding by PostNL of its pension funds. limited. Liability for loss or damage PostNL is exposed to claims for loss or damage. Some of these are PostNL maintains insurance policies on and in relation to its business covered under conventions such as the United Postal Union, the and assets with reputable underwriters or insurance companies Warsaw Convention or the Convention on the Contract for the against claims for loss or damage to the extent not covered by International Carriage of Goods by Road and PostNL’s general terms conventions, and to such extent as is usual for companies carrying on and conditions. a business such as that operated by PostNL. Claims for loss or damage not covered under these conventions and/ or PostNL’s general terms and conditions may negatively affect PostNL’s result. Sale of real estate Following the restructuring of PostNL’s logistics infrastructure in the PostNL has developed a sales plan and is continuously monitoring Netherlands, PostNL is engaged in an extensive programme to sell the real estate market and adapting its plan and valuation off parts of its real estate portfolio. The value of PostNL’s real estate accordingly. might decrease due to market developments, which might lead to lower profit from sale and impairments. This might negatively affect PostNL’s financial position. Currency and interest rate fluctuations PostNL is exposed to currency and interest rate fluctuations that Both currency and interest rate risks are hedged in accordance with could have an adverse effect on its financial condition and results. the relevant Group policies (see also note 29 to the financial statements). Decline of asset values Changes in markets, useful lives of assets and PostNL’s business plans PostNL performs regular impairment tests for intangible and tangible could result in impairment of the carrying value of assets, thereby assets based on business planning and strategic forecasts and if reducing net income and impacting equity. impairment triggers occur. Downgrade in credit rating A downgrade in the credit rating of PostNL may increase financing Credit ratings are closely monitored and actively managed based on costs and harm PostNL’s ability to finance operations and (expected) performance and other relevant factors. acquisitions, which could negatively affect revenues and profitability in the medium and long term. Impact of economic downturn Apart from the effect on the TNT Express N.V. retained stake and PostNL has a balanced portfolio, with some parts more cyclical in pension results, the potential impact of an economic recession in nature than others. In addition, corrective plans have been developed Europe, including unforeseeable developments concerning the to potentially counter the impact of an economic downturn. stability of the euro, may negatively affect PostNL’s business results. This might also trigger impairment on PostNL investments in the corporate financial statements. 42 PostNL Annual Report 2011

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    Report of the Board of Management | Chapter 12 12 Board of Management compliance statement The management of risks, internal control, integrity and compliance forms an integral part of business management within PostNL. It is embedded within PostNL’s business objective-setting process and its operations and is continuously strengthened and improved. Risk management, internal control, integrity and Risk management compliance PostNL has a comprehensive risk management framework in place. This section provides an overview of PostNL’s approach to risk This framework targets the detection of and the response to the management, internal control, integrity and compliance. It includes main risks that PostNL encounters in the realisation of its objectives. the disclosures required by the Dutch Corporate Governance Code For an overview of these main risks, please refer to chapter 11. and chapter 5.1a of the Dutch Financial Markets Supervision Act (Wet op het financieel toezicht). The key risks PostNL is facing in Internal control over financial reporting (ICFR) executing its strategy and business processes are described in chapter 11. Throughout 2011, PostNL continued to invest the resources required to document and evaluate the design of internal controls over financial reporting, as well as continuing its comprehensive PostNL has embedded the Committee of Sponsoring Organizations programme of testing the operational effectiveness of these of the Tradeway Commission (COSO) Enterprise Risk Management internal controls. In 2011, the ICFR framework was tailored to the (ERM) – Integrated Framework (2004) as the foundation of its risk new PostNL head office organisation. PostNL also further refined management, internal control, integrity and compliance systems. its system of company-wide controls, which are applicable to all Built upon this framework is a comprehensive portfolio of Group entities. policies and controls which direct and instil discipline in the company’s business processes. This supports the Board of Management in its statutory and fiduciary obligations vis-à-vis In 2011, the Board of Management continued to engage PostNL’s stakeholders in developing and achieving its strategic, operational external auditor, together with the Internal Audit department, to and financial objectives. The head office functions are responsible perform specific agreed-upon procedures regarding the internal for ensuring that the legal and regulatory compliance objectives are control over financial reporting in material entities within the scope achieved and that decision-making is facilitated and supported by of PostNL’s ICFR programme. transparent, accurate and relevant information. Integrity The Supervisory Board, its audit committee and other designated PostNL is committed to sound business conduct. It therefore committees perform an oversight role, while the PostNL internal manages its business according to its Business Principles and audit function and the company’s external auditors support the applicable laws and regulations. In this endeavour, the PostNL Board of Management and the Supervisory Board in monitoring the Integrity Committee is charged with advising and assisting in effectiveness and efficiency of the risk management, internal developing, implementing and monitoring Group policies and control, integrity and compliance framework. procedures aimed at enhancing integrity and ethical behaviour and at preventing fraud throughout the company. The Integrity General compliance Committee oversees and coordinates investigations based on reports of possible breaches filed under the PostNL Business PostNL’s Group policies and procedures reflect and define “the tone Principles, the PostNL Group Procedure on Whistleblowing and the at the top” and PostNL's way of doing business. Group policies have PostNL Group Policy on Fraud Prevention. The committee advises been reviewed and, where necessary, adapted to the current and makes recommendations with regard to guidelines for organisation. disciplinary actions. The Integrity Committee advises and makes recommendations to the Board of Management and line Strategies have been established for PostNL and translated into management on the mitigation of fraud risk and on ethical and anti- clear objectives with regard to business, markets, financial results, corruption matters. The Integrity Committee reports regularly to human resources and sustainability. The objectives are reviewed in the Board of Management and every six months to the Supervisory the annual strategic review and the budget process at company Board. level and at the level of PostNL’s operational units. Performance and compliance are monitored regularly in discussions between the appropriate line management and the Board of Management, Director’s responsibility statement under Dutch through the Letter of Representation (signed by the managing and Corporate Governance Code finance directors of PostNL’s Group entities and company-level The Dutch Corporate Governance Code under best practice management that report directly to the Board of Management), provision II.1.4 requires the Board of Management to provide a via internal audits and through the monitoring duties of PostNL description of the main strategic, operational, legal, regulatory, committees. financial and financial reporting risks. PostNL Annual Report 2011 43

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    Report of the Board of Management | Chapter 12 | Board of Management compliance statement The Board of Management confirms that it is responsible for PostNL’s risk management, internal control, integrity and compliance systems and has reviewed the operational effectiveness of these systems for the year ended 31 December 2011. The outcome of this review and analysis has been shared with the audit committee and the Supervisory Board and has been discussed with PostNL’s external auditors. The Board of Management believes to the best of its knowledge based on the outcome of the PostNL-specific approach to risk management, internal control, integrity and compliance as outlined above, that PostNL’s internal control over financial reporting worked effectively over the year ended 31 December 2011 and provides a reasonable assurance that the financial reporting is free from material inaccuracies or misstatement. The above, however, does not imply that PostNL can provide certainty as to the realisation of business and financial strategic objectives, nor can PostNL’s approach to internal control over financial reporting be expected to prevent or detect all misstatements, errors, fraud or violation of laws or regulations. In view of the above, the Board of Management believes it is in compliance with best practice provision II.1.4 and II.1.5 of the Dutch Corporate Governance Code. Director's responsibility statement under Financial Markets Supervision Act (Wet financieel toezicht) In conjunction with the EU Transparency Directive as incorporated in chapter 5.1a of the Dutch Financial Markets Supervision Act (Wet financieel toezicht), the Board of Management confirms to the best of its knowledge that: • the annual financial statements for the year ended 31 December 2011 give a true and fair view of the assets, liabilities, financial position and profit and loss of PostNL and its consolidated companies, • the additional management information disclosed in the annual report gives a true and fair view of PostNL and its related companies as at 31 December 2011 and the state of affairs during the financial year to which the report relates, and • the annual report describes the key risks facing PostNL. These are described in detail in chapter 11. The Hague, 27 February 2012 Harry Koorstra – Chief Executive Officer Jan Bos – Chief Financial Officer Herna Verhagen – Member of the Board of Management Gérard Aben – Member of the Board of Management 44 PostNL Annual Report 2011

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    Financial statements | Chapter 13 13 Financial statements PostNL N.V. Consolidated Financial statements PostNL N.V. Corporate Financial statements Consolidated statement of financial position 46 Corporate statement of financial position 107 Consolidated income statement 47 Corporate statement of income and comprehensive income 107 Consolidated statement of comprehensive income 47 Corporate statement of cash flows 108 Consolidated statement of cash flows 48 Corporate statement of changes in equity 109 Consolidated statement of changes in equity 49 Notes to the corporate financial statements 110 Notes to the consolidated financial statements 50 General information and description of the business 110 General information and description of the business 50 Change of accounting framework 110 Summary of significant accounting policies 51 Summary of significant accounting policies 111 Critical accounting estimates and judgements in applying 60 Reconciliation from previous GAAP to IFRS-EU 113 PostNL’s accounting policies Notes to the corporate statement of financial position 114 Notes to the consolidated statement of financial position 62 37 Total financial fixed assets 114 1 Intangible assets 62 38 Pension assets 115 2 Property, plant and equipment 64 39 Accounts receivable from and payable to Group companies 116 3 Assets classified for demerger 65 40 Assets classified as held for demerger and profit from 117 4 Investments in associates 66 discontinued operations 5 Inventory 67 41 Equity 117 6 (Trade) accounts receivable 67 42 Eurobonds 119 7 Prepayments and accrued income 68 Notes to the corporate statement of income and 119 8 Cash and cash equivalents 68 comprehensive income 9 Assets classified as held for sale 68 43 Dividend income 119 10 Equity 68 44 Depreciation, amortisation and impairments 119 11 Pension assets / Provisions for pension liabilities 71 45 Salaries, pensions and social security contributions 119 12 Other provisions 76 46 Other operating expenses 119 13 Long-term debt 77 47 Net financial expenses 119 14 Other current liabilities 78 48 Income taxes 120 15 Accrued current liabilities 78 Notes to the corporate statement of cash flows 121 Notes to the consolidated income statement 79 49 Net cash used in operating activities 121 16 Net sales 79 50 Net cash from investing activities 121 17 Other operating revenues 79 51 Net cash used in financing activities 121 18 Other income 79 52 Change in cash from discontinued operations 121 19 Salaries, pensions and social security contributions 79 Additional notes 122 20 Depreciation, amortisation and impairments 88 53 Commitments and contingencies 122 21 Other operating expenses 89 54 Financial risk management 122 22 Net financial expenses 89 55 Financial instruments 122 23 Income taxes 90 56 Related party transactions and balances 122 Notes to the consolidated statement of cash flows 92 57 Subsequent events 123 24 Net cash from operating activities 92 58 Subsidiaries and associated companies at 31 December 2011 123 25 Net cash from/(used in) investing activities 92 Other information 124 26 Net cash from/(used in) financing activities 93 Independent auditor’s report 124 Additional notes 94 Extract from the articles of association on appropriation of 125 27 Business combinations 94 profit 28 Commitments and contingencies Dividend proposal 2011 125 94 29 Financial risk management Appropriation of profit 125 95 30 Financial instruments Group companies of PostNL N.V. 125 98 31 Earnings per share Subsequent events 125 100 32 Joint ventures 100 33 Related party transactions and balances 101 34 Segment information 102 35 Subsequent events 104 36 Postal regulation and concession 104 PostNL Annual Report 2011 45

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    Financial statements | Chapter 13 Consolidated statement of financial position At 31 December Notes 2011 2010 ASSETS Non-current assets Intangible assets 1 Goodwill 121 120 Other intangible assets 55 46 Total 176 166 Property, plant and equipment 2 Land and buildings 238 294 Plant and equipment 112 119 Other 32 33 Construction in progress 69 53 Total 451 499 Financial fixed assets Investments in associates 4 940 4 Other loans receivable 2 3 Deferred tax assets 23 20 21 Other financial fixed assets 1 3 Total 963 31 Pension assets 11 1,217 1,153 Total non-current assets 2,807 1,849 Current assets Inventory 5 9 8 Trade accounts receivable 6 417 412 Accounts receivable 6 41 38 Income tax receivable 23 3 3 Prepayments and accrued income 7 121 108 Cash and cash equivalents 8 668 65 Total current assets 1,259 634 Assets classified as held for sale 9 52 123 Assets classified for demerger 3 5,531 Total assets 4,118 8,137 LIABILITIES AND EQUITY Equity 10 Equity attributable to the equity holders of the parent 400 2,424 Non-controlling interests 14 19 Total 414 2,443 Non-current liabilities Deferred tax liabilities 23 341 327 Provisions for pension liabilities 11 219 231 Other provisions 12 201 255 Long term debt 13 1,607 1,582 Total 2,368 2,395 Current liabilities Trade accounts payable 219 154 Other provisions 12 132 134 Other current liabilities 14 291 257 Income tax payable 23 94 135 Accrued current liabilities 15 600 582 Total 1,336 1,262 Liabilities related to assets classified as held for sale 9 0 26 Liabilities related to assets classified for demerger 3 2,011 Total liabilities and equity 4,118 8,137 (in € millions) The accompanying notes form an integral part of the financial statements. 46 PostNL Annual Report 2011

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    Financial statements | Chapter 13 Consolidated income statement Year ended 31 December Notes 2011 2010 Net sales 16 4,283 4,274 Other operating revenues 17 14 19 Total revenues 4,297 4,293 Other income 18 53 22 Cost of materials (195) (178) Work contracted out and other external expenses (1,937) (1,701) Salaries, pensions and social security contributions 19 (1,429) (1,561) Depreciation, amortisation and impairments 20 (112) (120) Other operating expenses 21 (260) (275) Total operating expenses (3,933) (3,835) Operating income 417 480 Interest and similar income 20 14 Interest and similar expenses (121) (120) Net financial expenses 22 (101) (106) Results from investments in associates (25) (1) Impairments of investments in associates 4 (636) Profit/(loss) before income taxes (345) 373 Income taxes 23 (78) (91) Profit/(loss) from continuing operations (423) 282 Profit/(loss) from discontinued operations 3 2,159 69 Profit for the period 1,736 351 Attributable to: Non-controlling interests 0 4 Equity holders of the parent 1,736 347 Earnings per ordinary share (in € cents)1 452.8 92.9 Earnings per diluted ordinary share (in € cents) 2 452.8 92.5 Earnings from continuing operations per ordinary share (in € cents) (110.3) 74.4 Earnings from continuing operations per diluted ordinary share (in € cents) (110.3) 74.1 Earnings from discontinued operations per ordinary share (in € cents) 563.1 18.5 Earnings from discontinued operations per diluted ordinary share (in € cents) 563.1 18.4 (in € millions) 1 Earnings per ordinary share are in 2011 based on an average of 383,374,983 outstanding ordinary shares (2010: 373,536,123). 2 Earnings per diluted ordinary share are in 2011 based on an average of 383,374,983 outstanding ordinary shares (2010: 375,026,008). Consolidated statement of comprehensive income Year ended at 31 December 2011 2010 Profit for the period 1,736 351 Continued operations Gains on cashflow hedges, net of tax 9 7 Impact changes other comprehensive income associates 22 - 31 7 Discontinued operations Gains/(losses) on cashflow hedges, net of tax 22 (7) Currency translation adjustment, net of tax 49 105 71 98 Total other comprehensive income for the period 102 105 Total comprehensive income for the period 1,838 456 Attributable to: Non-controlling interests - 4 Equity holders of the parent 1,838 452 (in € millions) PostNL Annual Report 2011 47

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    Financial statements | Chapter 13 Consolidated statement of cash flows Year ended at 31 December Notes 2011 2010 Profit/(loss) before income taxes (345) 373 Adjustments for: Depreciation, amortisation and impairments 112 120 Share-based payments 9 5 Profit on disposal of assets held for sale (17) (11) Profit on sale of Group companies/joint ventures (33) (3) Interest and similar income (20) (14) Interest and similar expenses 121 120 Impairments and results of investments in associates 661 1 Total investment income 712 93 Pension liabilities (143) (281) Other provisions (64) 170 Total changes in provisions (207) (111) Inventory (1) 2 Trade accounts receivable 0 (28) Accounts receivable (3) (16) Other current assets (20) (5) Trade accounts payable 60 30 Other current liabilities excluding short-term financing and taxes 4 12 Changes in working capital 40 (5) Cash generated from operations 321 475 Interest paid (101) (99) Income taxes paid (98) (205) Net cash from operating activities 24 122 171 Interest received 7 3 Dividend received 7 0 Acquisition of subsidiairies and joint ventures (net of cash) (2) (5) Disposal of subsidiaires and joint ventures 110 2 Capital expenditure on intangible assets (33) (21) Disposal of intangible assets 0 1 Capital expenditure on property, plant and equipment (104) (88) Proceeds from sale of property, plant and equipment 62 17 Other changes in (financial) fixed assets 1 0 Changes in non-controlling interests (1) (1) Net cash from/(used in) investing activities 25 47 (92) Cash settlement of Share-based payments (6) 2 Proceeds from long-term borrowings 1 0 Repayments of long-term borrowings (2) (12) Proceeds from short-term borrowings 29 0 Repayments of short-term borrowings (4) (2) Repayments of finance leases (4) (3) Dividends paid (80) (119) Financing related to discontinued business 498 41 Net cash from/(used in) financing activities 26 432 (93) Change in cash from continuing operations 601 (14) Cash at the beginning of the period 65 80 Exchange rate differences 2 (1) Total change in cash 601 (14) Cash at the end of the period 668 65 (in € millions) The accompanying notes form an integral part of the financial statements. 48 PostNL Annual Report 2011

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    Financial statements | Chapter 13 Consolidated statement of changes in equity Attributable Issued Additional Reserve to equity Non- share paid in Translation Hedge associat Other Retained holders of the controlling Total capital capital reserve reserve es reserves earnings parent interests equity Balance at 31 December 2009 178 871 (146) (43) 0 953 247 2,060 20 2,080 Total comprehensive income 105 347 452 4 456 Final dividend previous year 1 (1) (64) (64) (64) Appropriation of net income 183 (183) 0 0 Interim dividend current year 1 (1) (55) (55) (55) Transfers to classified as held for demerger 0 (3) (3) Share based compensation 29 29 29 Other 2 2 (2) 0 Total direct changes in equity 2 (2) 0 0 0 214 (302) (88) (5) (93) Balance at 31 December 2010 180 869 (41) (43) 0 1,167 292 2,424 19 2,443 Total comprehensive income 49 31 22 1,736 1,838 0 1,838 Appropriation of net income 248 (248) 0 0 Demerger Express (867) (2,929) (3,796) (3,796) Reduction nominal value (152) 152 0 0 Second interim dividend 2010 2 (2) (44) (44) (44) Interim dividend current year 1 (1) (36) (36) (36) Share based compensation 16 16 16 Other (2) (2) (5) (7) Total direct changes in equity (149) (718) 0 0 0 (2,667) (328) (3,862) (5) (3,867) Balance at 31 December 2011 31 151 8 (12) 0 (1,478) 1,700 400 14 414 (in € millions) PostNL Annual Report 2011 49

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    Financial statements | Chapter 13 Notes to the consolidated financial statements General information and description of the business PostNL N.V. is a public limited liability company with its registered seat and head office in ´s-Gravenhage, the Netherlands. The consolidated financial statements include the financial statements of PostNL N.V. and its consolidated subsidiaries (hereafter referred to as ‘PostNL’, ‘Group’ or ‘the company’). Following the approval of the shareholders of TNT N.V. ('TNT') at the Extraordinary General Meeting of Shareholders on 25 May 2011, the name of TNT was changed to PostNL on 31 May 2011 and the demerger became effective as per 31 May 2011. This created a newly-listed company, TNT Express N.V. (‘TNT Express’) in which PostNL initially held 29.9% of the shares. Both PostNL and TNT Express are listed on NYSE Euronext in Amsterdam. PostNL provides businesses and consumers in the Benelux, the United Kingdom, Germany and Italy with an extensive range of services for their mail needs. PostNL’s services involve collecting, sorting, transporting and delivering of letters and parcels for the company’s customers within specific timeframes. The company also provides services in the area of data and document management, direct marketing and fulfilment. The consolidated financial statements were authorised for issue by PostNL’s Board of Management and Supervisory Board on 27 February 2012 and are subject to adoption at the Annual General Meeting of Shareholders on 24 April 2012. Demerger Express On 2 December 2010, TNT N.V. announced the demerger of the Express activities after it received positive advice from the Works Council and obtained approval from the Board of Management and Supervisory Board. As a consequence, the Express activities were reported as discontinued operations/held for demerger as at 31 December 2010 and in the 2010 consolidated income statement the net result of the Express activities was presented as a separate line “Profit/(loss) from discontinued operations”. In 2011, the net result of the Express business of €73 million is reported under “Profit/(loss) from discontinued operations” up to and including 31 May 2011. As from 1 June 2011, PostNL’s share in the net result of TNT Express N.V. is part of the “Results from investments in associates”. The impact of the demerger resulted in a net book gain of €2,086 million, which is recorded as part of “Profit/(loss) from discontinued operations” in the consolidated income statement and a net impact on equity of €1,564 million, being the demerger gain of €2,086 million excluding the recycling of the currency translation adjustment and hedges of €146 million for a total amount of €2,232 million offset by the impact of the demerger of 70.1% of the Express activities for an amount of €3,796 million. Refer to note 3 and 10 of the consolidated financial statements. The consolidated statement of cash flows was positively impacted following the settlement of outstanding positions with TNT Express, resulting in a net increase of the cash position of €498 million as at 2 July 2011. Shareholding in TNT Express As of 1 June 2011, the initial shareholding of 29.9% in TNT Express is treated as an “Investment in associates”. PostNL’s share in the result of TNT Express is included in the consolidated income statement using the equity method taking into account additional depreciation and amortisation (“purchase price adjustments”). These purchase price adjustments are prescribed by IAS 28.32, which states that the difference between the fair value and book value of the TNT Express shareholding should be reflected in the identification of fair value adjustments and intangibles, resulting in additional depreciation and amortisation. As a result, the “Results from investments in associates” in the consolidated income statement will not be equal to 29.9% of the net result attributable to the shareholders as reported by TNT Express. The total impact of the purchase price adjustments amounted to €16 million on an annual basis. The purchase price adjustments related mainly to the identified customer relationships and brand name TNT Express. The customer relationships will be amortised over a period of 20 years. The trade name will not be amortised since this asset is considered to have an indefinite useful life. The carrying value of the investment in TNT Express is reported as a single line item “Investments in associates” and therefore includes the identified purchase price adjustments and goodwill. The changes in the carrying value reflect PostNL’s share in the net earnings and direct equity movements of TNT Express, reduced by the purchase price adjustments, dividends received and potential impairment charges on the investment. PostNL’s share in non-distributed earnings of TNT Express is included in “Reserve associates” within shareholders’ equity. PostNL assesses on each reporting date whether there is objective evidence that the investment in associate TNT Express may need to be impaired. The recoverability of the investment in TNT Express is reviewed based on observable publicly available market data. A significant or prolonged decline in the fair value is an important quantitative triggering event for impairment of PostNL's investment in TNT Express. Possible impairment charges may be reversed if there is an indication that the impairment no longer exists or has been decreased. As at 1 June 2011, the investment in TNT Express was initially valued at €1,583 million based on the opening share price of TNT Express N.V. at 1 June 2011 of €9.77. Between 1 June 2011 and 31 December 2011, the share price of TNT Express declined 50 PostNL Annual Report 2011

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