Mail

Business description

Our Mail division provides services for collecting, sorting, transporting and distributing domestic and international mail, including letters, printed matter and parcels, as well as for distributing addressed direct mail and unaddressed mail (i.e. the item of correspondence does not carry an individual address). We also provide a range of data and document management services, including direct marketing and interactive services and services for managing physical and electronic information flows.

The following table sets out the financial performance of our Mail division for the past three years:

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Year ended at 31 December
Mail financial overview	2006	2006	variance %	2005 ¹	variance %	2004 ¹
	US$	€		€		€
Total operating revenues	5,365	4,065	2.8	3,955	2.7	3,852
as % of total operating revenues TNT		40.4		42.4		43.6
Other income	77	58	123.1	26	225.0	8
Total operating expenses	(4,438)	(3,362)	(4.9)	(3,206)	(4.9)	(3,057)
Total operating income	1,004	761	(1.8)	775	(3.5)	803
as % of mail operating revenues		18.7%		19.6%		20.8%
(in millions, except percentages) 1 Figures have been adjusted to reflect the transfer of Cendris UK from Mail to Express in 2006.

In 2006, our Mail business earned revenues of €4,065 million, a 2.8% increase compared to 2005.

STRATEGY and actions

In the mail industry it is our ambition to become the leading provider of business and consumer related services for communication, transactions and delivery. We want our Mail operations to be recognised as the industry benchmark for quality of service, efficiency and customer service, for producing the best returns in the industry, and for making optimal use of both new technologies and European postal market liberalisation.

Our Mail strategy is based on two key elements:

• In our domestic Mail operations in the Netherlands, we focus on our customers and on the efficiency of our network. We implement our customer centric approach through our sales channels, product development and new business. The price/value strategy together with the implementation of our cost flexibility measures are designed to enable us to retain our margins within a stable band. In addition, we continue to offer high service quality and new services to customers that bring cost savings to their production chains.
• Internationally, we continue to expand in attractive markets along two tracks:
  • through an offensive approach we aim to build an alternative postal company to the incumbent operator in world-wide selected countries and markets. Our European Mail Networks business line offers addressed, unaddressed and segmented distribution solutions for letters and direct mail, brochures, leaflets and samples with an excellent price/quality ratio, and
  • through postal alliances we strive to strengthen our position by way of cooperation with other organisations and postal operators.

We want our mail operations to be recognised as the industry benchmark for quality of service ef ficiency and customer service and for producing the best returns in the industry

Business performance

In the Netherlands we have announced new initiatives to:

• limit volume pressure through further product and price differentiation and investments to maintain and generate new volumes, and
• reduce costs further through initiatives that we expect to generate €300 million in additional annual savings on top of the already existing cost flexibility measures (under the so-called Master Plans).

In Germany, one of the key mail markets in Europe, we accelerated the expansion of our regional distribution networks to strengthen our position in nationwide addressed delivery. We have decided not to build a nationwide network, but will focus on high density areas, either through greenfield operations under the brand name TNT Post Regioservice or via acquisitions. In 2006 we acquired PostCon Deutschland AG, the market leader in consolidation in Germany. Through this acquisition we were able to grow our customer base and to bring volume into our own networks.

The United Kingdom is the second largest market in Europe and is therefore 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 successful in 2006, as we gained many important contracts.

In the fourth quarter of 2006 we also launched a parcel service in the UK. The acquisition of the JD Williams courier network provides an entry for TNT Post UK to business-to-consumer and consumer-to- consumer parcel and delivery markets, providing 80% household coverage in the United Kingdom.