“Deutsche Post” is the high-performance brand of the MAIL Corporate Division. Under this name, we offer a comprehensive portfolio of products and services for paper-based communication. With revenue of €11.7 billion and a delivery volume of 21 billion items, we are Europe’s largest mail service provider. In Germany, our nationwide infrastructure of 83 mail sorting centers allows us to serve 39 million households and three million corporate customers. The MAIL Corporate Division was once the original nucleus of the Group. Since the mid-1990s, we have been expanding this core business by offering additional services and products in new Corporate Divisions. The mail business contributed around 28% of total revenue in fiscal year 2002.

1) For a detailed explanation of the Corporate Division’s financial development,
please see the “Business Developments” section of the Group Management Report
2) EBITA / revenue
3) Restatement of prior-period amounts due to reallocation of the retail outlets (see item 9 in the Notes)

Expansion in Europa
The Mail Communication, Direct Marketing and Press Distribution Business Divisions represent the Corporate Division’s German business activities.

Mail Communication is responsible for all mail products for business and private customers. In addition, this Business Division offers philately and hybrid mail products. Hybrid mail is mail that is received electronically as a file, printed and delivered as a letter. The Direct Marketing Business Division enables our business customers to reach their clients directly. The most important medium in this Business Division is Infopost, i.e. addressed advertising mailings. The Press Distribution Business Division focuses on the delivery of newspapers and magazines.

As a result of the progressive deregulation of the mail markets, we are gaining access to new growth markets in Europe. In order to leverage these opportunities, we established the Foreign Domestic International and Solutions International Business Divisions in 2002. Both Business Divisions will begin contributing to operations in fiscal year 2003.

Foreign Domestic International is home to our distribution activities in the European mail markets. The British regulatory authority, Postcomm, has granted us an initial license that will allow us to operate in the British mail market. We will also expand our mail activities in the Netherlands: we have established the conditions necessary to do so by acquiring Interlanden B.V. and forming a joint venture with its parent company, Wegener N.V.

In the area of value added services, we have restructured our national and international activities and concentrated them in the Solutions International Business Division. We define “value added services” as complex individual solutions for our business customers, such as the outsourcing of a company’s entire internal mail processing system. At present, the operational units of this Business Division include subsidiaries that were previously allocated to the national Business Divisions. These subsidiaries include PrintCom, which offers hybrid mail services, MERKUR Direktwerbegesellschaft mbH & Co. KG and Deutsche Post In Haus Service GmbH, the market leader for the outsourcing of internal mail processing.

Declining advertising spending impacts mail market
Despite the weak economy, the German market for mail communication was stable in 2002 with revenue of €7.8 billion. Our market share is still solid at 94.3%, although competition increased in individual segments. Our competitors were able to increase market share in two areas in particular: local mail delivery by third parties (local post) and the transport of mail not covered by the exclusive license (exceeding 200g). The market shares for individual segments are shown in the diagram below.

A harmonized mail market does not currently exist in Europe; deregulation is occurring in individual European countries in different ways and at differing speeds. We are thus leveraging our opportunities to access interesting European mail markets. Our first steps in this direction have led us to the UK and the Netherlands – two countries that have already opened their mail markets, which are among Europe’s five largest, to foreign competitors.

The German advertising market also suffered in the face of the weak economy in 2002. This market recorded a forecast volume of €40.5 billion. The volume of the narrower definition of the direct marketing segment, the segment consisting of advertising mail, telemarketing and e-marketing that is relevant to our business, remained close to its prior-year level with a volume of €13.3 billion; our share in this market totals 15.7%.

The weak economy also caused decreases in circulation, particularly in the specialist financial press, which in turn led to an overall shrinking of the market for press product distribution. This market recorded a forecast volume of 20.1 billion items in the year under review, compared with approximately 21 billion items in the previous year.We have an 11.0% share of this highly fragmented market.

Revenue remains stable
At €11,666 million, revenue in the MAIL Corporate Division remained at the prioryear level (€11,707 million) in fiscal year 2002. Revenue per business day remained at €47.0 million, while revenue per employee rose from €85,400 to €89,400.

Revenue in the Mail Communication Business Division remained stable at a high level, totaling €7,280 million after €7,367 million in the previous year. Thanks to our increased focus on our business customers, sales in this segment even increased slightly by 0.8% despite the weak economic development. This increase is shown in the second table below.

PrintCom made a particularly positive contribution to the Mail Communication Business Division,generating significantly higher revenue with hybrid mail as a result of increased customer acquisitions. For example,we produced and distributed voter notification cards for around 100 municipal and local authorities in the run-up to the German federal elections.

We tapped new revenue potential with mail-related ervice and supplementary products for our business customers. With our product Mailoptimizer,for example, we simplified postage franking for our major customers and introduced a cashless payment alternative via a customer card.

In contrast to these positive results, we recorded a decline in private customer business. Our customers initially used the period up to June 30,2002 to use up their supplies of stamps denominated in DM, but did not build up new reserves to a corresponding extent because of the price cuts announced for January 1,2003.

In the Direct Marketing Business Division,we generated revenue of €2,066 million and were thus able to maintain the prior-year level (€2,072 million). We consider this a major success in light of the difficult situation on the advertising market. Sales volumes declined by 1.0 billion to 9.0 billion advertising mailings. Although sales in the higher-priced area of addressed mailings (Infopost/Infobrief)were stable, sales volumes of partly and unaddressed mail (Postwurf Spezial/Postwurfsendung) decreased. Although this decrease was planned in order to increase the average price, it was also brought about by economic factors. In the area of value added services, we recorded growth with products such as Mailingfactory, which allows small and mid-sized business customers to design their own direct marketing campaigns via an Internet portal.

The weak market for press products led us to a decline in the Press Distribution Business Division:sales volumes decreased by 0.1 billion to 2.2 billion items, and revenue dropped from €841 million in 2001 to €823 million in the year under review.

Earnings develop as expected
With revenue at approximately the prior-year level,the profit from operating activities (EBITA) totaled €1,658 million after €1,960 million in the previous year. This decline in earnings is primarily due to a significant increase in costs compared with revenue. For further details, please see the “Business Development" section of the Group Management Report.
The return on sales of 14.2% was in line with our expectations.

Investments in modern technology
Investments decreased slightly from €369 million in the previous year to €342 million in fiscal year 2002. They were primarily used to replace vehicles and operating assets.

We also invested in technical equipment for our 83 mail sorting centers. In addition to improving reading techniques as well as final delivery sorting, we optimized the related databases for the coding and sorting programs.This led to yet another increase in sorting quality. We also increased the degree of automation to 88% after an already high value of 87% in the previous year. This figure ranks very highly in international comparisons.

Further increase in quality
Quality remains a high priority for us. In 2001, we were able to maintain our J+1 transit time at the high level of 95% despite workflow interruptions caused by letters suspected of containing anthrax. In the year under review, this figure was well over 95%. We also succeeded in achieving an even shorter transit time for addressed advertising mail: almost 97% of these mailings were delivered to their recipients four days after they were handed over to Deutsche Post (fiscal year 2001: 96%).

In order to meet the needs of our customers even more effectively, we have restructured our sales organization according to branches of industry. The individual sales units –from Key Account Management through to the Direct Marketing Center – are now even more focused on our customers ’specific needs and usage patterns.

Outlook
Two external factors will influence our mail business in fiscal year 2003: firstly,the price cuts that have been ordered by the regulatory authority will take effect as of January 2003, resulting in a drop in annual revenue and earnings of approximately €300 million. Secondly, the weight limit for letters in our exclusive license area will be lowered from 200g to 100g as of January 2003 – this will further intensify competition on the German mail market.

We intend to limit the impact of these external factors. We have developed the following countermeasures within the framework of our Group-wide value creation program, STAR: we will reduce the number of flights in our overnight airmail network, promote business in the Foreign Domestic segment and generate additional revenue with innovative products. We will also make price adjustments in unregulated areas and optimize our procedures for emptying mailboxes. From 2003 through 2005, we intend to use these value-enhancing measures to offset the forecasted decrease in earnings.

In doing so, we will fully adhere to the Post-Universaldienstleistungsverordnung (PUDLV – Postal Universal Service Ordinance).

Increasing deregulation is providing us with opportunities to access additional European mail markets. We will examine these opportunities in our new Foreign Domestic International and Solutions International Business Divisions, taking into account individual market and regulatory situations,and pursue them with the appropriate resources. We aim to achieve a strong position in the key European markets and thus further expand our market leadership in Europe.