TNT

In 2005, our Mail business earned revenues of €3,984 million, a 2.4% increase compared to 2004. Mail accounted for 39.4% of our group operating revenues and 67.0% of our group operating income.

In 2005, through our Mail Netherlands business line, we delivered on average approximately 17 million addressed postal items per day, six days a week, to approximately 7.6 million households and businesses, and collected, sorted and delivered approximately 5.1 billion addressed items of mail (excluding inbound international items).

The actual volume decline was 3.1% in 2005 compared to 2004. The underlying decline of volumes adjusted for a comparable number of working days per year was 2.0%. There has been an average annual decline of 1.8% since 2000. The decline was due in part to substitution of electronic media, accelerated by competition. We expect a further decline in addressed mail over the next few years due to the increasing use of electronic mail, electronic bill presentment, reduced frequency of bank statements, competition and other factors.

We have maintained our profitability because of our customer focus and a set of cost restructuring measures that are being implemented with great rigour. Through our customer focus we are able to illustrate the effectiveness of post as a communications medium, realise optimal total chain costs for our customers, develop new innovative services and realise high service quality standards. The ability to offer data and document management services is also a competitive factor. In 2001, we formulated our cost flexibility programme with works council discussions and initial pilots aiming at €320 million of savings on an annualised basis by 2012, compared to our cost levels in 2001. In 2004, we updated this cost flexibility programme with an overhead master plan, and we now expect to achieve annualised cost savings by 2012 of approximately €370 million. In 2005, we achieved aggregate cost savings of €234 million, which was €89 million more than we realised in 2004.

In the last few years we have replaced manually arrangingthe mail according to street and house number with sortingmachines (“sequence sorting machines”) for small letter mailitems, in accordance with our cost flexibility programme. Theproject started in 2003. The last of the 286 sequence sortingmachines was rolled out in October 2005, and the project wasfinished in November 2005, as planned.

In 2003, we also introduced the position of mail deliverer: part-time mail deliverer positions that provide the same quality for customers at lower cost and with greater flexibility for the individual and the company. The new mail deliverer positions are particularly attractive to individuals who want to work limited hours but still have the security of a permanent position and pension. At the end of 2005, a total of approximately 7,100 new employees have joined TPG Post as part-time deliverers, and the number continues to grow. Through natural attrition, up to a total of 9,000 full-time equivalent mailman positions is expected to be replaced by part-time mail deliverer positions by the year 2012. By then an additional 5,000 mailman positions will become redundant. We believe that the cost flexibility programme will help us maintain the high quality of service our customers have come to expect, while also maintaining our margins. In 2004 a plan (as part of our existing master plans) was announced to redesign the management structure of the operational activities of our collection, sorting, transport and distribution. This new structure became effective on 1 January 2006.

European Mail Networks
Through our European Mail Networks business line, we are building a position to offer our customers a full service concept for mail, based upon high quality of service and wide coverage in addressed and unaddressed delivery. In addition, we offer a portfolio of mail-related services to reinforce our distribution activities. We have a presence now in Austria, Belgium, the Czech Republic, Germany, Italy, the Netherlands, Slovakia and the United Kingdom.

In 2005 the main focus was on expanding addressed activities in the key markets of Germany and the United Kingdom.

In Germany, one of the key mail markets in Europe, we expanded our regional distribution networks to strengthen our position in nationwide addressed delivery. We will not build a nationwide network, but we will focus on high density areas, either through greenfield operations under the brand name TNT Post Regioservice (Hamburg, Düsseldorf and Frankfurt) or via acquisitions (assets of Rheinkurier GmbH, Köln). The aim is to be active in all key areas in Germany with our own regional distribution. With this we can secure the nationwide product offering of our 71% subsidiary EP Europost AG & CO KG., which successfully gained new customers and more than doubled revenues in 2005. The geographical coverage for the distribution of letter mail is close to 90% of Germany. This has been achieved by EP Europost through partnerships with regional distribution companies, of which TNT Post Regioservice is one.

Being the second largest mail market in Europe, the United Kingdom is a key market for us. In the United Kingdom we have contracted with Royal Mail for downstream access which allows us to offer customers an alternative in the postal market. This arrangement was highly successful in 2005, as we gained many important contracts. At the same time we are setting up sorting facilities to be able to offer customers a broader portfolio of services. Our ultimate goal is to provide customers with an end-to-end solution. We intend to start pilots for that in pre-selected areas. The cooperation with the Express Dairies milkmen in the United Kingdom was terminated in the fourth quarter due to lower than expected coverage of this particular network. When entering in the UK mail market the brand name TNT gave us a first-mover advantage by reducing the time to market significantly.