Operating assets and liabilities

Working capital

Accounts receivable

PostNL Accounts receivable in € million
2018, 2019

Trade accounts receivable are non-interest bearing and are generally on terms of 3 to 30 days.

The main part of the allowance for expected credit losses related to a collective loss component established for groups of similar trade accounts receivable balances. This collective loss component is largely based on the ageing of the trade accounts receivable and is reviewed periodically. The fair value of the total (trade) accounts receivable approximated its carrying value.

The increase in VAT receivable is mainly caused by VAT receivables from the German tax authorities (€8 million).

The increase in other accounts receivable is mainly caused by receivables related to the compensation scheme for paid transition benefits (€9 million), receivables related to the sale of Postcon (€10 million, including an earnout arrangement and a final net working capital adjustment) and receivables related to the sale of PostNL Communication Services (€7 million).

The compensation scheme for paid transition benefits is a government regulation following the introduction of the Compensation transition payments Act, whereby companies can declare the costs of the paid transition payments, which occur following dismissal due to an illness that has lasted two years or longer, to the UWV (Employee Insurance Agency).

The concentration of the trade accounts receivable per customer is limited. The top 10 trade accounts receivable accounted for 19% of the outstanding balance as at 31 December 2019 (2018: 18%). The concentration of the trade accounts receivable portfolio over the different regions can be summarised as follows:

• Netherlands €235 million (2018: €278 million),

• rest of Europe €22 million (2018: €18 million), and

• the rest of the world €14 million (2018: €17 million).

The movements in the allowance for expected credit losses of trade accounts receivable were as follows:

PostNL Statement of changes in the allowance for expected credit losses of trade accounts receivable in € million
2018, 2019

Set out below is the information about the credit risk exposure on the trade accounts receivable using a provision matrix.

PostNL Expected credit losses in € million
2018, 2019

Other current liabilities

PostNL Other current liabilities in € million
2018, 2019

The decrease in VAT payable is mainly the result of the review of the methodology applied for calculating non-deductible VAT charges, with application as from the year 2018. As a result hereof, the payable position for the fiscal year 2018 decreased in 2019. The resulting impact has been accounted for as a change in estimate, as at year-end 2018 there was no certainty as to the outcome of the review.

Contract liabilities

PostNL Contract liabilities in € million
2018, 2019

In 2019, consolidation of Sandd positively impacted our Christmas stamp sales, thereby reducing the related deferred contract liabilities. We expect to perform almost all services related to the outstanding contract liabilities at 31 December 2019 within one year. However, note that within one year we expect outstanding contract liabilities more or less in line with the amounts currently reported.

Accrued current liabilities

PostNL Accrued current liabilities in € million
2018, 2019

Main items within the expenses to be paid to third parties included payables to business partners of €12 million (2018: €16 million), claims of €6 million (2018: €5 million) and various other expenses to be paid.

Expenses to be paid to personnel included accrued wages and salaries of €22 million (2018: €14 million).

The accrual for terminal dues relates to payables to foreign postal operators relating to the years 2019 and before, partly consisting of positions in SDR currency. The net payable position, including the receivable for terminal dues of €29 million (2018: €15 million) included in prepayments and accrued income, amounted to €100 million (2018: €132 million). The change reflects both the regular course of business as well as settlements of outstanding positions. The positions where there is no price multi- or bilateral agreement on price are based on our best estimate of the price for which we expect to settle.

Property, plant and equipment

PostNL Property, plant and equipment in € million
2018

PostNL Property, plant and equipment in € million
2019

As a result of the adoption of IFRS 16 at 1 January 2019, an amount of €37 million was transferred from property, plant and equipment to right-of-use assets of which €27 million related to finance leases and €10 million to capitalised leasehold rights and ground rent contracts.

Capital expenditures in cash 2019 are below the level of 2018. Investments were made in the sorting equipment for the small parcel sorting centre within Parcels and in various other equipment. Both developments also impacted the internal transfers and reclassifications from construction in progress to land and buildings, plant and equipment and other.

The disposals mainly related to the sale of real estate in the Netherlands. The book profit from the sale of real estate is included in other income in the consolidated income statement.

In 2019, the transfers to assets held for sale related for €7 million to buildings in the Netherlands and for €5 million to equipment from Spotta that was classified as held for sale per 31 December 2019. In 2018, the transfers to assets held for sale related for €3 million to buildings in the Netherlands and for €19 million to discontinued operations. The amount of €19 million relating to discontinued operations represents the balance as at 1 January 2018 (3 August 2018: €18 million). The net movement of €(1) million included capital expenditures of €2 million and depreciation of €3 million.

In 2018, PostNL decided to finance a number of Parcel sorting centres and sorting machines through financial leases. PostNL concluded these financial leases with an entity especially set up for this purpose by a third party. The term of the finance lease contracts is 10 years. At 31 December 2018, one sorting centre has been finalised, which triggered the recording of the related finance lease asset and liability. The construction of this centre started in 2017 in which year €3 million of capital investments were made. In 2018, all further construction costs of €9 million have been incorporated in the concluded financial lease. A sale and lease back transaction has been recorded for the €3 million of costs already capitalised in 2017. The cash proceeds are reported as ‘Proceeds from long-term borrowings’ in the cash flow statement. As a result of the adoption of IFRS 16 at 1 January 2019, the financial leased assets are transferred to right-of-use assets, reference is made to note 3.4.

Intangible fixed assets

PostNL Intangible fixed assets in € million
2018

PostNL Intangible fixed assets in € million
2019

In 2018, the transfers to assets held for sale of €62 million related to discontinued operations and represents the balance as at 1 January 2018 (3 August 2018: €62 million). In 2019, the comparable transfers related to Spotta, which was classified as assets held for sale at year-end 2019.

Goodwill

Goodwill is allocated to the Group’s cash-generating units (CGUs) and tested for impairment. The CGUs correspond to an operation in a particular country or region and the nature of the services provided. Compared to 2019, the CGU structure has not changed.

In 2019, the addition to goodwill of €128 million is related to the acquisition of Sandd and allocated to the CGU Mail in the Netherlands. Reference is made to note 5.3 Business combinations for more detailed information. The disposal of goodwill of €1 million related to the sale of PostNL Communicatie Services (CGU Mail in the Netherlands).

PostNL Goodwill per CGU in € million
2018, 2019

Based on the 2019 financial performance, a detailed review has been performed of the recoverable value of each CGU. The recoverable value is the higher of the value in use and fair value less costs of disposal. Fair value less costs of disposal represents the best estimate of the amount PostNL would receive if it sold the CGU. The recoverable value is determined based on the value in use. The value in use has been estimated on the basis of the present value of future cash flows.

For both mature markets and non-mature markets, the estimated future net cash flows are based on a eight-year forecast and business plan, as management considers these forecasts reliable based on past experience. The cash flow projections have been approved by management.

PostNL has determined the budgeted gross margin based on past performance and its expectations for market development. The weighted average growth rates used are consistent with the forecasts included in industry reports. The pre-tax discount rate used in the CGU valuations varies around 9.5% (2018: around 10%).

Key assumptions used to determine the recoverable values for each individual CGU are the following:

• maturity of the underlying market, market share and volume development in order to determine the revenue mix and (long term) growth rate,

• level of operating income largely impacted by revenue and cost development, taking into account the nature of the underlying costs and potential economies of scale,

• level of capital expenditure in network-related assets, and

• discount rate to be applied following the nature of the underlying cash flows and foreign currency and inflation-related risks.

Management has carried out an impairment test for each individual CGU and concluded that the recoverable amount of the individual CGUs is higher than the carrying amount.

Software and other intangibles

The closing balance of software and other intangibles is build up as follows:

PostNL Software and other intangibles in € million
2018, 2019

The additions to software mainly concerned IT investments related to replacement and improvement of sorting and delivery processes within Mail in the Netherlands and Parcels, and software licenses and costs of internally-generated software for various IT projects including investments in our online landscape, logistic service platform and back office functionality. The reclassification from other intangibles was due to finalised IT projects. The increase in customer lists relates to the acquisition of Sandd.

The estimated amortisation expenses for software and other intangible assets are:

• 2020: €36 million,

• 2021: €30 million,

• 2022: €22 million, and

• thereafter: €52 million.

PostNL does not conduct significant research and development activities and therefore does not incur research and development costs.

Leases

PostNL Right-of-use assets in € million
2019

As a result of the adoption of IFRS 16 an amount of €132 million of right-of-use assets and liabilities is included in the balance sheet at 1 January 2019. Further, an amount of €37 million was transferred from property, plant and equipment to right-of-use assets of which €27 million relates to finance leases and €10 million to capitalised leasehold rights and ground rent contracts.

The new leases of €132 million in 2019 mainly relate to new sorting and delivery centres within Parcels and replacement/expansion of buildings, vans and trucks. The acquisition of Sandd resulted in an increase of the right of use assets of €40 million. In 2019, the depreciation of €77 million includes €17 million of accelerated depreciation of assets from Sandd. The transfers to assets held for sale of €4 million related to rented buildings from Spotta that was classified as held for sale at 31 December 2019.

In 2018, PostNL decided to finance a number of Parcel sorting centres and sorting machines through financial leases. PostNL concluded these financial leases with an entity especially set up for this purpose by a third party. The term of the lease contracts is 10 years. In 2019, 3 sorting centres have been finalised and related right-of-use assets and lease liabilities have been recorded (2018: 1 sorting centre, transferred from property, plant and equipment at 1 January 2019).

PostNL Lease liabilities in € million
2018, 2019

In 2018, the lease liabilities related to finance leases. In 2019, repayments of lease liabilities amounted to €62 million (2018: €2 million). Refer to note 4.1 for further information on the lease liabilities.

The lease liabilities as at 1 January 2019 can be reconciled to the off balance sheet operating lease commitments as at 31 December 2018 as follows:

PostNL Reconciliation off balance sheet commitments and leases in € million
2019

In 2019, rent and lease expenses of €16 million relate for €9 million to short-term leases and for €7 million to leases for which the underlying asset is of low value. The interest expenses on lease liabilities amounted to €3 million in 2019.

Provisions for pension liabilities

PostNL’s main Dutch defined benefit average pay pension plan (main plan) covers the employees subject to PostNL’s collective labour agreement and staff with a personal labour agreement in the Netherlands. The main plan is externally funded in ‘Stichting Pensioenfonds PostNL’ (main fund), an independent legal entity which is not owned or controlled by any other legal entity and which falls under the regulatory supervision of De Nederlandsche Bank.

PostNL also runs a number of defined benefit transitional plans, which mainly consist of a conditional pension benefit (“soft pension”) ultimately granted and financed towards the main fund at 31 December 2020 or retirement, if earlier.

Main developments during 2019

In 2019, PostNL, the trade unions and the main fund agreed on a change in the financing agreement of the main plan. Starting 1 January 2020, the coverage ratio dependent increase in contributions (10% if the coverage ratio is below 120% and 5% if the coverage ratio is between 120% and 130%) is used solely for the benefit of the active participants instead of all participants. Parties agreed to fixate the variable increase at 5.5%, reflecting the long-term average outcome based on the current coverage ratio. Parties also agreed to include the separate invoicing of 0.2% contribution for 2% additional surviving dependant's pension benefits. As a result, the minimum and maximum level of pension (cash) contributions increased from 21.5% to 21.7% and from 27.5% to 29.2% respectively. The change positively impacted the resulting accrual rate. In the long term it will not result in higher cash contributions.

In 2015, PostNL started the payment of the unconditional funding obligation to the main fund by a first instalment of €32 million. In the years 2016 to 2019 the following instalments have been paid. At 31 December 2019, there is no outstanding funding obligation.

At year-end 2020 all remaining conditional soft pension benefits of our CLA employees have to be funded towards the pension fund. Based on the financing agreement with the fund, the costs are based on Q3 2019 parameters. Interest rates were at a multi-year low during Q3 2019 and negatively impacted the amount of the final payment, which would amount to approximately €300 million. Taking into account the interests of all stakeholders, PostNL has initiated discussions with the fund on options for a solution smoothing the impact of the low interest rate in the determination of the final payment. A possible solution might be to apply pricing based on expected returns in combination with a mark-up to the actuarial costs per 31 December 2020 capped at a maximum amount. This could lead, should interest rates develop beneficially, to an outcome that the required overall payment can come down and/or phased differently. The entitlements of the employees will not be affected, as payments will be based on a cost effective premium. We aim to conclude on this process in Q1 2020.

In relation to the acquisition of Sandd, we also acquired a closed defined benefit pension plan. We have assessed the remaining employer risks of these closed plans as negligible. On the basis hereof, we have concluded these closed plans can be treated as defined contributions plans.

Further details of the main plan

The main plan is a defined benefit average pay scheme, with a basis accrual rate of 1.875% of the pensionable base and retirement age set at 68 years. The pensionable base is derived as the pensionable salary, with a statutory maximum of €107,593 (level 2019), minus a state pension offset.

Pension (cash) contributions are bounded by a minimum level of 21.7% and a maximum level of 29.2% of the pensionable salary base. The calculations are based on the main fund's expected return on plan assets. Based on the total maximum premium amount, the intended pension accrual can be reduced in any year. Given the applicable financing arrangements and current low interest rates, it is expected that the accrual rate will be lower than the basis level of 1.875% for the coming years. The accrual rate for 2019 and 2020 has been set at 1.652% and 1.751% of the pensionable base.

When the 12 months average coverage ratio will be below the minimum required funding level of 104.0% a 5-year recovery period will start, in which top-up payments of at most 1.25% of the fund’s plan obligations per year might apply. In determining the top-up payment obligation, the resilience of the pension fund will be taken into account. The requirement to supplement a deficit will be determined on the basis of the ‘beleidsdekkingsgraad’ (i.e. the 12-months average coverage ratio). Based on our projections we do not anticipate any top-up payments.

By the end of 2019, the month-end coverage ratio of the main fund amounted 113.4% (2018: 112.1%). The increased coverage ratio is mainly explained by a negative effect from a decrease of the interest rate and a positive return on plan assets. The 12-months average coverage ratio amounted 110.6% per 31 December 2019 (2018: 116.0%).

The returns on plan assets are linked to the strategic investment policy of the main fund. The fund uses interest rate derivates to reduce the net interest exposure on its assets and liabilities. The plan assets may from time to time include investments in PostNL’s own financial instruments through indirect holdings by mutual funds. Around 72% of the fund's total plan assets have a quoted market price in an active market. The unquoted part relates to investments in investment funds which invest in non-listed assets (for example real estate investments) and non-listed derivatives.

PostNL Asset mix/return of main pension plan in %
2018, 2019

Statement of changes in provision for defined benefit plans

The following table presents an overview of the movement of the provision for post-employment benefit plans during 2019.

PostNL Statement of changes in provision for defined benefit plans in € million
2019

The following table gives a break-down of total pension costs, pension cash contributions, actuarial gains and losses, and the impact of the asset ceiling and/or minimum funding requirement.

PostNL Details on cost, cash, gains and losses, and adjustments in € million
2018, 2019

The actuarial gain of €44 million (2018: loss of €9 million) resulting from a change in the rate of benefit accrual follows from the expected decrease of the future benefit accrual rate due to low interest rates. Given the current low interest rates and the applicable financing agreement, it is expected that the benefit accrual rate will be lower than the basis level of 1.875% for the coming years. Note that the positive impact of the adjusted financing agreement on the rate of benefit accrual has been offset by a negative impact on the rate of benefit increases, resulting in a net operating income impact of zero.

The negative adjustment of €87 million is the consequence of the increase in the main fund’s funded status (on the basis of IAS 19 accounting) during 2019, triggering asset ceiling and adjustment of the recorded minimum funding requirement.

For 2020, we expect total cash contributions of around €420 million including the final payment of soft pension benefits per year-end 2020 of approximately €300 million (2019: €144 million including the fifth and last instalment of the unconditional funding obligation of €33 million). Note that the amount and/or timing of the final payment of soft pension benefits might change, pending finalisation of discussions with the pension fund. We refer to the earlier section Main developments in 2019.

For 2020, we expect total employer pension costs of around €150 million (2019: €125 million). The increase is mainly explained by the lower discount rate resulting in a higher defined benefit obligation and higher service costs. As the net liability of the main pension plan is limited to the outstanding funding obligation, we expect an actuarial gain of around €7 million recorded in other comprehensive income. The expected actuarial gain will be positively impacted if the amount of the final payment of soft pension benefits would come down.

Detailed reconciliation of the opening and closing balances

The following table reconciles the opening and closing balances of the present value of the defined benefit obligation and the fair value of plan assets, the funded status and the netted pension provisions, and the employer pension expenses of PostNL's defined benefit post-employment plans.

PostNL Detailed overview of changes in consolidated defined benefit plans in € million
2018, 2019

Key assumptions

The discount rate is based on the long-term yield on high quality (AA-rated) corporate bonds, taking into account the duration of the projected pension liabilities of around 18 years. The corporate bond yield information is sourced from Bloomberg, taking into account a minimum outstanding amount and other defined selection criteria. By applying curve-fitting procedures, a yield curve is generated. Using the full yield curve, the discounted value of the expected future benefit payments is matched with the comparable present value when using a single discount rate.

The conditional benefit increases are based on the (derived) Consumer Price Index. The assumed rate of benefit increases is based on advice, published statistics, the pension plan's ambition level and the actual financial status of the pension fund.

Assumptions regarding the longevity outlook are based on advice, published statistics and experience per country. The applied prospective longevity rates are derived from the Dutch mortality table 'AG prognosetafel 2018' taking into account experience rates based on postal areas, as applied by the main fund.

Sensitivity analysis of the defined benefit obligation

The table below shows the sensitivity of the defined benefit obligation at year-end 2019 to deviations in key assumptions, with all other assumptions held unchanged. The percentages presented exclude any impact from applying a liability ceiling, nor is the impact on plan assets, asset ceiling and/or minimum funding requirement included. The sensitivity to life expectancy of +1/-1 year is measured by assuming all plan participants 1 year younger/older. The percentages presented are prior to any effect of liability or asset ceiling.

PostNL Sensitivity defined benefit obligation as indicated
2019

Other provisions

The following table presents the changes in the short-term and long-term provisions.

PostNL Other long-term and short-term provisions in € million
2019

The estimated utilisation of the other provisions in 2020 is €53 million, in 2021 €13 million, in 2022 €3 million and in 2023 and thereafter €10 million.

Other employee benefit obligations

As at 31 December 2019, the other employee benefit obligations related to a provision for jubilee benefits of €13 million (2018: €14 million) and long-term disability benefits of €7 million (2018: €5 million).

Restructuring

The additions in restructuring provision of €31 million mainly relates to the restructuring programmes within Sandd (€24 million), operations Mail Netherlands (€3 million) and Cross Border Solutions (€2 million). In consultation with the works council of Sandd a social plan was agreed for the employees of Sandd who did not accept the job offer of PostNL and as a result would become redundant.

The withdrawals of €7 million concerned severance payments under the cost saving programmes totaling €4 million related to around 60 FTEs and payments for other initiatives totaling €3 million related to around 90 FTEs.

The release of €5 million mainly related to the cost saving programmes within operations and head office departments, resulting from reduced redundancies due to increased attention on internal mobility and periodical reassessments of the expected cash costs.

Claims and indemnities

The provision for claims and indemnities includes provisions for claims from third parties with respect to PostNL’s ordinary business activities, as well as indemnities and disputes related to business disposals. Within Sandd, the disputes mainly relate to discussions on the remuneration (incl. pensions) of employed and contracted people. More detailed information relating to these provisions is not provided, as such information could prejudice the company’s position with respect to these claims and indemnities.

Other

The additions in other provisions of €9 million mainly relate to onerous contracts within Sandd (€6 million) and anticipated customs clearance costs (€3 million). Within Sandd's opening balance, a dilapidation provision of €2 million has been recorded.

Investments in joint ventures and associates

The following table presents the changes in the carrying value of the investments in joint ventures and associates.

PostNL Investments in joint ventures and associates in € million
2018, 2019

As at 31 December 2019, the investments in associates mainly related to minority shareholdings in MyParcel.com and RoamlerCare, within Parcels. There were no material joint ventures. All joint ventures are private companies and there is no quoted market price available for their shares.

In 2019, the disposals of €1 million relate to the liquidation of Postkantoren B.V, our former joint venture with ING Bank N.V.

In 2018, the transfers to assets held for sale of €8 million related to discontinued operations and represents the balance as at 1 January 2018 (3 August 2018: €8 million). There were no material movements.

In 2018, the additions of €2 million related to the acquisition of 30% of the shares of MyParcel.com and 30% of the shares of RoamlerCare. MyParcel.com develops and sells package delivery software for webshops. The multilingual platform is intended for international customers and gives access to multiple delivery services, including Spring. RoamlerCare offers online platforms where people who need care can make contact with independent care providers, to plan the care, to share information and to express wishes. In 2019, additional capital contributions were made in both entities of €1 million in total. PostNLs stake in MyParcel.com increased to 40% of the shares.

Management has assessed none of the investments in joint ventures and associates to be material to the company. On a 100% basis, the profit/(loss) of all immaterial investments in joint ventures amounted to €0 million (2018: €0 million). The profit/(loss) of all immaterial investments in associates amounted to €(1) million (2018: €(1) million).

Deferred income tax assets and liabilities

The following table shows the movements in deferred taxes in 2019:

PostNL Statement of changes deferred taxes in € million
2019

Of the deferred tax assets at 31 December 2019, €59 million (2018: €8 million) is to be recovered within 12 months and €6 million (2018: €58 million) after 12 months. Of the deferred tax liabilities at 31 December 2019, an amount of €0 million (2018: €20 million) is to be settled within 12 months and an amount of €0 million (2018: €11 million) after 12 months.

The changes via other comprehensive income of €4 million fully relate to taxes on OCI from pensions, of which €3 million relate to the impact of tax rate changes in the Netherlands.

The other changes of €18 million (2018: €57 million) represent mainly the Dutch tax credit potential upon realising (liquidation) losses in connection with the sale of the Nexive and Postcon businesses (refer to note 3.9).

The total accumulated losses available for carry forward at 31 December 2019 amounted to €115 million (2018: €112 million). With these losses carried forward, future tax benefits of €29 million could be recognised (2018: €30 million). Tax deductible losses give rise to deferred tax assets at the statutory tax rate in the relevant country. Deferred tax assets are recognised if it is probable that they will be realised. The probability of the realisation is impacted by uncertainties regarding the realisation of such benefits, for example as a result of the expiration of tax losses carried forward and projected future taxable income.

As a result PostNL has not recognised €23 million (2018: €24 million) of the potential future tax benefits and has recorded deferred tax assets of €6 million at 31 December 2019 (2018: €6 million).

The expiration of total accumulated losses is as follows:

• 2020: €4 million,

• 2021: €3 million,

• 2022: €1 million,

• 2023: €2 million,

• 2024 and thereafter: €32 million, and

• Indefinite: €73 million.

The following table shows the movements in deferred taxes in 2018:

PostNL Statement of changes deferred taxes in € million
2018

Assets classified as held for sale

As at 31 December 2019, assets classified as held for sale amounted to €91 million (2018: €200 million) and related for €10 million to buildings held for sale in the Netherlands (2018: €5 million), for €65 million to Nexive (2018: €195 million related to Nexive and Postcon) and for €16 million to Spotta. The liabilities related to assets classified as held for sale of €100 million related for €84 million to Nexive (2018: €121 million related to Nexive and Postcon) and for €16 million to Spotta.

Nexive and Postcon

In line with PostNL’s strategy to accelerate our transformation to become the logistics and postal solutions provider in the Benelux, PostNL has decided to divest Nexive and Postcon. On 3 August 2018, the classification criteria of IFRS 5 Non-current Assets Held for Sale and Discontinued Operations were met. Accordingly, as of Q3 2018, Nexive and Postcon are reported as ‘held for sale’ and the results and cash flows are reported as ‘discontinued operations’.

On 5 August 2019, PostNL announced to have signed an agreement on the sale of Postcon’s activities to Quantum Capital Partners. The transaction closed on 31 October 2019. As part of the transaction, parties agreed on an earnout arrangement with a range from €0 to €12 million.

At 31 December 2019, the divestment process for Nexive was still ongoing. Refer to note 5.5 Subsequent events which discloses the signed agreement on the sale of Nexive's business.

The following table presents the financial performance and cash flow information of the discontinued operations for the years 2018 and 2019.

PostNL discontinued operations Financial performance and cash flow in € million
2018, 2019

The fair value impairment of €(48) million reflects the result of the completed Postcon transaction and anticipated Nexive transaction and includes a positive tax effect of €18 million (refer to note 3.8). The fair value measurement is based on inputs not based on observable market data (level 3).

The following table presents the carrying amounts of assets and liabilities (excluding equity and intercompany balances) at 31 December 2019 of Nexive and at 31 December 2018 of Postcon and Nexive.

PostNL discontinued operations Condensed balance sheet in € million
2018, 2019

At year-end 2019, the main part of the provisions of €9 million (2018: €11 million) related to the unfunded defined benefit plan Trattamento di Fine Rapporto (TFR) of €7 million (2018: €7 million) in Italy (applying a discount rate of 0.8%).

The average number of employees working for the discontinued operations was 1,375 employees (2018: 4,908) with a comparable number of FTEs of 1,251 FTEs (2018: 4,256).

As a specific contingent tax liability, at the end of December 2019 a tax dispute exists relating to the years 2012, 2013 and 2014 which can be estimated, using a probability-weighted assessment, at €11 million. Although we believe that this risk is in the low possibility range (20%-30%), supported by external advice, the outcome of the matter will depend upon the result of any negotiations with the relevant tax authorities and the outcome of related litigation. Furthermore, it is uncertain whether comparable tax disputes will arise for the years as from 2015 onwards.

Spotta

At year-end 2019, the classification criteria of IFRS 5 Non-current Assets Held for Sale were met in relation to the anticipated sale of Spotta, market leader for leaflet distribution in the Netherlands and part of the segment Mail in the Netherlands. Following the classification as assets held for sale, Spotta has been impaired by €4 million as reflection of its fair value. Refer to note 2.1.4 for an overview of all recorded impairment charges. Refer to note 5.5 Subsequent events which discloses the signed sale and purchase agreement.

Property plant and equipment

Property, plant and equipment included in assets held for sale relate to buildings in the Netherlands. The book profit from the sale of buildings is included in other income in the consolidated income statement. The following table presents the movements of the balance sheet positions during 2019 and 2018.

PostNL Property, plant and equipment in € million
2018, 2019

Commitments and contingencies

PostNL Off balance sheet commitments in € million
2018, 2019

As at 31 December 2019, €118 million of the commitments indicated above are of a short-term nature (2018: €155 million).

Short-term leases and leases of low-value assets

In 2019, short-term leases mainly consists of leases of depots in Mail in the Netherlands. Leases of low-value assets are mainly related to the lease of scooters.

Leases, not commenced

As at 31 December 2019, commitments in connection with leases not commenced amounted to €82 million (2018: €39 million). These commitments primarily relate to the new headoffice (€49 million) and an acquired Sandd contract of €24 million for which an onerous contract provision of €3 million has been recorded. The remainder of €21 million is disclosed as commitment, although management expects these costs will be avoided. Other commitments relate to vans and cars.

Capital expenditure

As at 31 December 2019, commitments in connection with capital expenditure amounted to €34 million (2018: €20 million) and are related to property, plant and equipment. These commitments primarily relate to the new sorting centres of Parcels.

Purchase commitments

As at 31 December 2019, PostNL had unconditional purchase commitments of €127 million (2018: €123 million), primarily related to various service and maintenance contracts for information technology, security, salary registration and cleaning.

Contingent tax assets and liabilities

Multinational groups of the size of PostNL are exposed to varying degrees of uncertainty related to their tax planning, their (changes in) transfer pricing models, regulatory reviews and tax audits, fuelled by tax regulations and relevant practices in the countries where PostNL operates being subject to change. PostNL accounts for its (income) taxes on the basis of its own internal analyses, if needed, supported by external advice. PostNL continually monitors its global tax position, and whenever uncertainties arise, assesses the potential consequences and either records the receivable, discloses a contingent asset, accrues the liability or discloses a contingent liability in its financial statements, depending on the strength of the company’s position and the resulting chance of income or risk of loss.

Guarantees

As at 31 December 2019, PostNL, on behalf of its subsidiaries, had various parental support and bank guarantees outstanding. However, none resulted in an off-balance sheet commitment for the Group as the relating obligations to external parties have already been recognised by these subsidiaries following their ordinary course of business.

Contingent legal liabilities

The company is involved in several legal proceedings relating to the normal conduct of its business, such as claims for loss of goods, delays in delivery, trademark infringements, subcontracting and employment issues, and general liability. The majority of these claims are for amounts below €1 million and are insured and/or provided for. PostNL does not expect any liability arising from any of these legal proceedings to have a material impact.

The company is also involved in regulatory proceedings. While it is not feasible to predict or determine the ultimate outcome of these proceedings, the company is of the opinion that they may have an impact on the company’s financial position, result of operations and cash flows going forward. The company has made provisions for probable liabilities where deemed necessary and to the extent a reliable estimate of the future cash outflows can be made.

Separation agreement PostNL and TNT Express

Following the demerger of Express, PostNL and TNT Express entered into a separation agreement, which remained valid despite the sale of the shares in TNT Express under the public offer by FedEx in May 2016. The separation agreement creates certain rights and obligations for both PostNL and TNT Express after the demerger. Relevant aspects relate to pensions, litigation, such as claims and litigation handling, non-allocated and non-anticipated claims and release of provisions.

Pursuant to the pension arrangements concluded between PostNL, TNT Express and the pension funds, PostNL provided a subsidiary guarantee for TNT Express in the event of violation of contractual terms, irregularity of payments and bankruptcy. This subsidiary guarantee only relates to pension benefits accrued under the existing pension plans (up to the date of the demerger) and will comprise a liability that gradually decreases over time. In addition, PostNL has provided a guarantee for future TNT Express pension payments, barring certain unforeseen circumstances. The guarantees of PostNL will only exist as long as the coverage ratio of the TNT Express fund is below a certain level. If the coverage ratio rises above that level and remains above that level for three consecutive quarters, the guarantees lapse.

As at 31 December 2019, no events had occurred that triggered disclosure of a significant contingent asset or liability following the aforementioned agreement with TNT Express.

Segment information

Balance sheet information

A reconciliation of the segment information relating to the balance sheet of the reportable segments is presented below. Segment information relating to the income statement is reported in note 2.5.

PostNL Segmentation - balance sheet and capital expenditures in € million
2019

A reconciliation of the segment information relating to the balance sheet of the reportable segments as at 31 December 2018 is presented below.

PostNL Segmentation - balance sheet and capital expenditures in € million
2018

The segment information from a geographical perspective is derived as follows: the basis of allocation of assets and investments by geographical area is the location of the assets.

PostNL Geographical segmentation - assets in € million
2018, 2019