generally higher wages and salaries. Staff costs accounted for 63 per cent of total expenses, which is a slightly lower rate compared with the year before (64 per cent).
The number of staff, translated into full-time equivalents, was 21,511, which was only mar- ginally (28) lower than the year before.
OPERATING PROFIT (EBIT)
Operating profit was DKK 1,065 million in 2006 against DKK 1,124 million in 2005. The operat- ing profit margin, calculated as the operating profit or loss as a percentage of income, was 9 per cent in 2006 against 10 per cent in 2005. The lower operating profit margin can primarily be explained by higher amortisation and depre- ciation charges and growing operating expenses.
FINANCIALS
Shares of profits or losses of associates and joint ventures showed an income of DKK 168 million in 2006 against a loss of DKK (9) million in 2005. The shares of profits or losses were in particular affected positively by income from MIE GROUP S.A. of DKK 161 million.
Financial income and expenses showed a net expense of DKK 46 million in 2006 against DKK 82 million in 2005.
TAX ON PROFIT FOR THE YEAR
Tax on the profit for 2006 was DKK 295 million, equivalent to an effective tax rate of 25 per
cent thanks to the positive result of associates and joint ventures. The effective tax rate is slightly lower than in previous years.
ALLOCATION OF PROFIT
Net profit for the year was DKK 892 million. In accordance with the adopted dividend policy, it is proposed that DKK 669 million be paid as dividend and that DKK 223 million be trans- ferred to equity.
SUBSEQUENT EVENTS
On 4 January 2007, the Group entered into an agreement with Transportgruppen A/S on the acquisition of 51 per cent of the shares for DKK 31 million.
On 7 February 2007, Post Danmark decided to sell its shares in Morgendistribution Danmark A/S. The ownership interest is recognised at DKK 0 in the annual report, and the sale will therefore have no financial effect in 2007.
In 2007, the Group will sell the properties rec- ognised in the annual report as assets held for sale. The properties are expected to be sold at a profit of approx. DKK 100 million, exclusive of expenses in connection with the sale and tax on the profit. The profit will be recognised in 2007.
Apart from this, no events have occurred since the end of the year which have materially af- fected the consolidated financial statements for 2006.
BALANCE SHEET NON-CURRENT ASSETS
Intangible assets rose from DKK 1,062 million at year-end 2005 to DKK 1,169 million at 31 December 2006. In 2006, investments totalling DKK 259 million were made in intangible as- sets. In addition, provision for amortisation was made at DKK 152 million.
Property, plant and equipment decreased from DKK 3,722 million at year-end 2005 to DKK 3,583 million at 31 December 2006. In 2006, investments totalling DKK 429 million were made in property, plant and equipment. In addition, provision for depreciation was made at DKK 436 million, and disposals amounted to DKK 33 million net. Furthermore, DKK 99 mil- lion were transferred to assets held for sale.
Major new investments include further au- tomation of letter production in the form of sorting machines for large letters as well as continuation of the Lean Enterprise programme designed to automate and standardise adminis- trative and management processes.
Investments in financial assets are primarily investments in and subordinate loans to associ- ates and joint ventures. Calculated at equity value these investments amounted to DKK 669 million at 31 December 2006 against DKK 63 million at year-end 2005.
RECEIVABLES
In 2006, receivables rose by DKK 119 million from DKK 1,813 million at year-end 2005 to DKK 1,932 million at 31 December 2006, mainly reflecting an increase in trade receivables of DKK 41 million and other receivables of DKK 69 million.
EQUITY
Equity at 31 December 2006 was DKK 2,731 million, rising by DKK 260 million since last year. The solvency ratio, calculated as equity as a percentage of the balance sheet total, was 36 per cent at 31 December 2006 against 35 per cent at 31 December 2005. Of the net profit for the year it is recommended to distribute DKK 669 million as dividend. The dividend paid for 2006 was DKK 550 million.
NON-CURRENT LIABILITIES
Non-current liabilities amounted to DKK 2,010 million at 31 December 2006, up DKK 310 million on 31 December 2005. In 2006, debt to mortgage credit institutions and other credit institutions was increased by DKK 422 million. Non-current liabilities relating to availability pay and severance pay etc. were reduced by DKK 50 million. Non-current liabilities relating to international settlements fell by DKK 49 million.
CURRENT LIAIBILITIES
Current liabilities were DKK 2,946 million at 31 December 2006. This is an increase of DKK 92 million from 2005, driven mainly by a DKK 103
million increase in trade payables and a DKK 12 million reduction in debt to credit institutions.
SEGMENT FINANCIAL STATEMENTS
Post Danmark’s largest segment is Business Customers, who is the largest single contribu- tor to the company’s earnings. Revenue rose compared with last year, but operating profit was affected by the fact that expenses rose more than prices, wages and salaries as a result of, among other things, higher fuel prices and higher distribution costs.
Following substantial costs in connection with the commissioning of the parcel centre at Tau- lov, Courier, Express, Parcels is close to having normalised the level of expenses. The level of expenses was on a par with 2005.
CASH FLOW STATEMENT
Cash flows from ordinary operating activities were DKK 1,226 million in 2006.
Cash flows from investing activities were DKK (1,154) million, due mainly to the purchase of non-current assets.
Cash flows from financing activities were DKK (127) million, mainly reflecting dividend paid of DKK (550) million and principal repayments of DKK (129) million on debt to mortgage credit institutions and other credit institutions. Con- versely, cash rose by DKK 537 million resulting from borrowings.
Cash flows from investing activities and financ- ing activities were greater than cash flows from operating activities. Cash therefore fell by DKK 55 million to DKK 201 million at 31 December 2006.
ECONOMIC VALUE ADDED IN POST DANMARK
The economic value added in Post Danmark, called the Economic Profit, is calculated as a supplement to the income statement. This calculation is based on the assumption that money is not earned until the total cost of loan capital and equity is covered. The conventional income statement does not include return on equity. A number of adjustments are made in the calculation of Economic Profit. For example, a reversal is made of goodwill amortisation and corrections are made for extraordinary items and items of a non-recurring nature.
NET PROFIT AT OPERATIONAL LEVEL (NOPAT)
NOPAT is calculated as profit before tax adjust- ed for non-operating items, goodwill amortisa- tion and calculated tax payable. Non-operating items are a substantial profit or loss on sales of properties etc. and provisions. The calculated tax payable is calculated as the tax payable in the consolidated financial statements adjusted for the tax value of the adjustments compared with the consolidated financial statements plus the tax value of the net financing cost. In the calculation of the calculated tax payable, the tax
DEFINITIONS OF RATIOS RELATING TO ECONOMIC VALUE ADDED
NOPAT = Net profit at operational level
Return on invested NOPAT X 100
asset of DKK 521 million arising from payment for the reduction of the pension liability in 2002 was disregarded in 2002-2004.
INVESTED CAPITAL
Invested capital comprises assets exclusive of initial goodwill in connection with the conver- sion to Post Danmark SOV and deferred tax as- sets. Non-interest bearing debt is set off against invested capital. Invested capital is calculated at an average at the beginning and the end of the year.
COST OF CAPITAL
Cost of capital is calculated as average invested capital x average cost of capital (WACC). In 2006, the WACC was calculated specifically on the basis of Post Danmark’s capital structure, market value, geared beta and required rate of return. The WACC was calculated at 6.5 per cent. In other years, the WACC used was esti- mated by an external financial institution, corre- sponding to 8 per cent in 2005. Using a WACC of 6.5 per cent, the economic value added would have been DKK 538 million in 2005.
Generally, the economic value added in 2006 showed an increase compared with 2005 owing to the improved result of associates and joint ventures and the changed WACC.
The return on invested capital (ROIC) was 18.8 per cent in 2006 compared with 18.7 per cent in 2005.
Overall, it may be concluded that Post Danmark has a good basis for creating value and real results. Both the return on invested capital and the economic value added were at a satisfactory level throughout all the years. In the year 2006, the economic value added was DKK 552 million against DKK 471 million in 2005.
POST DANMARK ECONOMIC VALUE ADDED 2002 – 2006
DKKM 2006 2005 2004 2003 2002
Profit/(loss) before tax 1,187 1,033 1,146 466 52 Reversal of goodwill amortisation 0 0 0 261 260 Reversal of finance expenses 53 55 60 64 105 Reversal of adjustments (195) (100) (99) 102 472 Adjusted operating profit before tax 1,045 988 1,107 893 889 Calculated tax payable thereon (202) (165) (297) (321) (313) Net profit at operational level (NOPAT) 843 823 810 572 576 Invested capital 4,483 4,397 4,247 3,193 3,259 Return on invested capital (ROIC) as a percentage 18.8 18.7 19.1 17.9 17.7 Average cost of capital 6.5 8.0 8.0 8.0 8.0
BASIS OF FINANCIAL REPORTING
The Annual Report of the Post Danmark Group for 2006 is prepared in accordance with the international financial reporting standards (IFRS) as adopted by the EU and additional Danish disclosure requirements for annual reports of listed companies.
Additional Danish disclosure requirements are those laid down by the statutory order on the adoption of IFRS issued pursuant to the Danish Financial Statements Act and by the Copenha- gen Stock Exchange.
The Annual Report for 2006 is presented in DKK million.
NEW ACCOUNTING STANDARDS AND ACCOUNTING POLICY CHANGES
The standards and interpretations which came into force during the financial year are not of relevance to Post Danmark.
The accounting policies applied are unchanged compared with previous years.
NEW ACCOUNTING STANDARDS ADOPTED
The IASB has adopted the following new ac- counting standards and interpretations, which come into force for the 2007 financial year or later, and which are deemed to be relevant to Post Danmark:
· IFRS 7 Disclosure of financial instruments, which comes into force on 1 January 2007
and involves an improvement of the informa- tion about the Group’s exposure to financial risks
· Amendment to IAS 1 Presentation of financial
statements – disclosure of capital structure,
which comes into force on 1 January 2007 and involves an improvement of the informa- tion about the Group’s capital structure · IFRS 8 Operating segments, which comes into
force on 1 January 2009 and replaces the ex- isting standard on segment reporting, IAS 14. IFRS 8 requires segment reporting to be based fully on the internal reporting
· IFRIC 10 Interim Financial Reporting and Im- pairment comes into force for financial years commencing on 1 November 2006 or later · IFRIC 12 on certain types of service concession
arrangements, which comes into force on 1 January 2008.
IFRS 8, IFRIC 10 and IFRIC 12 have not yet been adopted by the EU and are analysed in more detail in preparation for possible amend- ments.
RECOGNITION AND MEASUREMENT
The financial statements are prepared under the historical cost method.
Post Danmark’s use of historical cost as a basis of measurement of property, plant, equipment and financial assets instead of measurement at fair values has significant influence on the financial calculation of results and equity. For a detailed description of Post Danmark’s account-
ing policy, see the sections below in relation to property, plant and equipment and investments in joint ventures and associates.
Income is recognised in the income statement as it is earned. Income includes value adjust- ments of financial assets and liabilities meas- ured at fair value or amortised cost. Expenses incurred to generate the earnings for the period are recognised, for example, amortisation and depreciation, impairment losses and provisions as well as reversals of amounts previously recog- nised in the income statement as a result of changed accounting estimates.
Assets are recognised in the balance sheet when it is probable that future economic ben- efits will flow to the company and the value of the asset can be measured reliably.
Liabilities are recognised in the balance sheet when it is probable that future economic ben- efits will flow from the company and the value of the liability can be measured reliably.
On initial recognition assets and liabilities are measured at cost. Subsequently, assets and liabilities are measured as described for each item mentioned in the following.
Certain financial assets and liabilities are meas- ured at amortised cost, including a constant effective rate of interest during their term. Amortised cost is calculated as original cost less any principal repayments and plus/less the accu-