TPG

In 2004, our Mail division earned revenues of € 3.9 billion, slightly less than in 2003. Mail contributed 31% of TPG revenues and 62% of TPG earnings from operations.

In Mail, we aim to lead the world in postal efficiency and to be the frontrunner in the emerging pan-European mail market. We aim to deliver stable revenues and to maintain our margin at around 20%.

In Mail, we delivered 5.3 billion letters in 2004.

We also delivered a 96.5% next-day quality rating in the Netherlands and 16.1% growth in European Mail Networks.

• Mail Netherlands cost flexibility programme delivered € 45 million in savings
• European Mail Networks continue to grow
• Revenue challenges in Cross-Border and Data and Document Management

Demand for mail services continued to be influenced by the weak economy in 2004. In the Netherlands, domestic addressed mail volumes increased slightly due to more consumer letterbox mail and addressed bulk mail. Direct mail volumes, however, were down, due mainly to increased competition from other networks and other media. Together, these developments put the total volume decline at the low end of the expected range. In our European Mail Networks, we achieved 16.1% revenue growth, but revenues declined in our Cross-Border unit. The overall picture, however, remained stable with our Mail division achieving revenues of € 3.9 billion and a margin of 22%.

Our cost flexibility programme continues to deliver more savings.

Begun in 2001, our cost flexibility programme in the Netherlands has been offsetting volume declines with increased efficiencies in automatic sorting, labour conditions and commercial activities. In 2004, we redesigned the TPG Post overhead organisation, and plan to merge our sorting, distribution and transport units. The redesign aims to realise a reduction of between 700 and 800 full-time equivalents among support staff and line managers before 2008.

To minimise negative consequences for employees, we introduced incentives to encourage earlier departures for employees eligible for early retirement in 2006, 2007 or 2008, outplacement assistance and training resources for those who want to pursue careers outside the organisation, as well as exit premiums for those who voluntarily leave before 2006. By offering these incentives now, we aim to avoid more pressing social issues in the future.

By the end of 2004, we had installed about half the planned 286 sequence sorting machines, and had hired more than 5,000 new-style mail deliverers – part-time employees who enjoy flexible work schedules. By the year 2012, we expect to employ 20,000 new-style mail deliverers.

From its introduction in 2001 through the end of 2004, our cost flexibility programme has saved € 145 million. When fully implemented, it aims to save € 370 million annually (compared to 2001 cost levels), including € 265 million in our production activities and € 55 million in our marketing and sales activities and € 50 million in overhead reduction.

In one of Europe’s most open markets, we deliver more service at a lower price.

Our Mail business is subject to national regulation, as well as European and international regulation. In the Netherlands, the Postal Act assigns us the undertaking of certain activities. Through a concession granted by the Dutch government, we hold exclusive rights to perform some of these activities, which comprise approximately 40% of our Mail business in the Netherlands.

More than 50% of addressed mail volumes in the Netherlands, as well as 100% of the market for unaddressed mail, is already open to competition. After Sweden and Finland, the Netherlands has the smallest monopoly in Europe. Our exclusive right to provide mandatory services is confined to delivering letters weighing up to 100 grams or costing less than three times the basic tariff of € 0.39. Direct mail is not covered by the mandatory services in the Netherlands as it is in other countries.

The government regulates our mandatory activities with respect to service provision, price controls, cost and revenue accounting, and financial administration and reporting. We continued to achieve high levels of service quality in 2004. Next-day delivery reached a summer record of more than 97% in August and averaged 96.5% for the entire year.

In June 2004, we announced our intention to not increase the price of a consumer postage stamp from the present level of € 0.39 for the years 2004, 2005 and 2006. When corrected for inflation, the price of a postage stamp in the Netherlands has actually decreased by 30% over the past 12 years. We are, however, considering a minor amendment to prices for mandatory postal services for business customers covered by the price-control system in 2006. Any adjustment, however, will be kept below the rate of inflation for 2004 and 2005. Our consistently high service levels and low cost make us one of the most efficient mail delivery providers in the world.

We support a more open market in the Netherlands.

In 2004, the Dutch minister of economic affairs issued the policy for further liberalising the Dutch postal market. This so-called Postal Vision provides a long-term framework for development of the market in the Netherlands, including these key elements:

• Full liberalisation of the Dutch postal market in 2007 (dependent on full liberalisation of the markets in the United Kingdom and Germany).
• From 2007, universal service will be subject to a price-cap system based on inflation or the consumer price index.
• Universal service obligation after liberalisation restricted to single items at fixed rates; obligation to deliver bulk mail letters up to 50 grams for a transitional period. The minister of economic affairs will assess whether this obligation will indeed be necessary.
• Competitors and customers to be treated equally in terms of rates and conditions.

We support the policy and its consideration of the pace of liberalisation across Europe, specifically that of the two largest markets, Germany and the United Kingdom.

We face more competition.

In the past decade, a growing number of delivery organisations have entered the Dutch market, delivering not only unaddressed items, but also addressed mail. Our foreign competitors, too, are building positions in the Dutch market. Deutsche Post and Royal Mail already have their own delivery organisations in the Netherlands, and many other delivery organisations include numerous potential competitors for addressed mail. Moreover, a large portion of our direct mail volumes is under competitive pressure from other media.

We aim to deliver more across Europe.

In addition to maintaining our position and profitability in the Netherlands, we aim to be the first pan-European mail company and the second operator in major European countries. Despite the lingering pace of liberalisation, we remain strong believers in open markets and we continue towards our goal.

We have domestic mail operations in eight European countries, and we strengthened that presence in 2004 when we acquired the remaining 50% stake of unaddressed mail company Höfinger Haushaltswerbung in Germany and the remaining 40% stake of direct mail company DIMAR in the Czech Republic and Slovakia.

Through our access agreement with Royal Mail, we also increased our presence in Europe’s second-largest market, where the regulator has announced plans to open 40% of the market to competition. We now are able to offer business customers two-day mail service under the TNT Mail brand and to reach all 27 million households in the United Kingdom. In addition, in 2004 we began delivering heavier-weight addressed letters and parcels for TNT Mail customers in the country.

Our Cendris data and document management business offers direct marketing services in the Netherlands, the United Kingdom, Germany, the Czech Republic and Slovakia. In 2004, this business experienced a decrease in the document management business, and continued to be affected by the subdued economy in the Netherlands. Our Cross-Border business, which comprises our Spring joint venture with Royal Mail and Singapore Post, also experienced revenue declines in 2004, partly due to contract rationalisation.

Mail highlights

Mail strategy

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

Our Mail strategy is based on three key elements:

• In Mail Netherlands, our focus is on the retention of our current margins by implementing cost flexibility measures. In addition, we continue to offer new services that bring cost savings to our customers’ production chains.
• Internationally, we continue to expand along three tracks:
  • Through our European Mail Networks we offer addressed, unaddressed and segmented distribution solutions for direct mail, brochures, leaflets and samples with an excellent price/quality ratio.
  • We continue to strengthen our European position through alliances with other organisations and postal operators.
  • Our 51%-owned subsidiary Spring – our joint venture with Royal Mail Group plc and Singapore Post Pte Ltd. – offers cross‑border mail services on a global scale.
• In addition to physical mail delivery, we continue to offer mail-related data and document management services, such as direct and interactive marketing services and services for managing physical and electronic information flows.

Mail market position

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. 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.

Our substantial and long experience in the mail industry has helped us become one of the world's leading postal operators. It also helps us anticipate and respond to the changing market. In addition to providing world-class mail service, we continue to combine our expertise with technology to develop new mail-related data and document management services that meet specific consumer and business needs.

We have long viewed our core competence not as merely moving physical mail from one location to another, but as intelligently managing both physical and electronic flows of information. This skill is central to our objective, which is to maintain our margins through the implementation of cost flexibility measures and to maintain market share in the Netherlands, and to achieve growth through international expansion and the provision of mail-related data and document management services.

Source: Annual reports, team analysis

Through our European Mail Networks we are building a position to offer our customers a full-service concept for mail, based on high quality and wide coverage in addressed and unaddressed delivery, as well as a broad portfolio of services to reinforce our distribution activities. We currently have a presence in Austria, Belgium, the Czech Republic, Germany, Italy, the Netherlands, Slovakia and the United Kingdom. Our services combine our expertise in data collection and direct marketing to offer customers an intelligent unaddressed service that approaches addressed mail in its ability to target consumers.

Operational