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Ukrposhta –Reform Proposal
Proposal Submission
Igor Smelyansky
March 12, 2016
Difficult conditions and volume reduction in the world’s postal sector will continue its 1990 – 2015 trend in coming years
1
40
50
60
70
80
90
100
110
120
91 96 01 06 11
Base year
1991 = 100
-
50
100
150
200
250
91 96 01 06 11
Base year,
1991 = 100
Internal mail
International mailNational mail
International mail
Letter volumes will continue to fall across the world Parcels have pockets of growth, but not everywhere
� Africa
� Latin America and
Caribbean countries
� Asia and Oceania
� Eastern Europe and CIS
� Middle East
� Developed Countries
-17.0 %
-2.9 %
-10.6 %
-8.1 %
-21.5 %
-1.4 %
Change for 2013 - 2014
-30.3 %
18.0 %
-10.1 %
- 6.8 %
-13.7 %
3.7 %
� Africa
� Latin America and
Caribbean countries
� Asia and Oceania
� Eastern Europe and CIS
� Middle East
� Developed Countries
Change for 2013 - 2014
According to most forecasts,
mail (letter) volumes will
continue to fall across all the
segments
1 – Current assessment
and industry overview
Source: 1) United Postal Union, 2014 statistics. 2) Main Developments in a Postal Sector. Study for the European Commission, WIK Consult
2
These market trends make situation even more difficult for Ukrposhta, as Ukraine belongs to a number of countries with low postal services volumes
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2
301
2
27
6
115
3
7482
4
112
80
Number of letters per capita (2014) Number of parcels per annum per 1000 (2014)
Historical analysis shows that these numbers rarely drastically change (if ever) as they are
based on local customs, model of government services provision, etc.
Джерело: 1) United Postal Union, 2014 statistics.
1 – Current assessment
and industry overview
3
At the first glance Ukrposhta’s income structure corresponds to the best international benchmarks in terms of diversification of sources, however …
0
20
40
60
80
100
120
USPS
(США)
Deutsche
Post
UK Post
office
La Poste Canada
Post
Australia
Post
Poste
Italiano
Postal income structure in the
developed countries
Letters Parcels Logistics Financial services Other
Income in2014
(Mln. HRV)%
• Letters (2)
• Parcels
• Advertising and subscription mail
• Pensions
• Money transfers
• Payments
753
218
245
1,243
189
269
19%
5.6%
6.5%
32%
5%
7%
Per financial report for 2014 - ~ 44 % of
Ukrposhta’s income comes from financial services
~44%
Source: 1) United Postal Union, 2014 statistics. 2) Main Developments in a Postal Sector. Study for the European Commission, WIK Consult. 3) Ukrposhta
1 – Current assessment
and industry overview
4
… lately Ukrposhta is losing its position to banks and other postal operators in the most profitable segments…
In financial services Ukrposhta is losing retirees…
13.7 13.7 13.7 13.8 13.6 13.512,1
8.1 7.9 7.4 7.1 6.7
6.1 5.45.6 5.8 6.3 6.7 6.9
7.46.7
UkraineUkraineUkraineUkraine
UkrposhtaUkrposhtaUkrposhtaUkrposhta
BanksBanksBanksBanks
Number of retirees (without Crimea) in mln.
… and payment business to banks and fin. companies
IncomeIncomeIncomeIncome
((((MlnMlnMlnMln. HRV. HRV. HRV. HRV))))
Volume Volume Volume Volume
((((MlnMlnMlnMln. Units. Units. Units. Units)))) 22.1 22.2 22 20.9 20,3 14,7 14,5
207.4 223.1 237.7 245.0
274.5217,3
189,7
2009 2010 2011 2012 2013 2014 2015
(план*)
*
Money transfers (without Crimea)
Ukrposhta’s share in parcel segments
fell by 5% over the past 3 years
30%
25%
26%
22%
23%
24%
25%
26%
27%
28%
29%
30%
31%
2013 2014 2015
Ukrposhta’s share in parcel
segment
Nova Poshta – 60%
«Mist - Express»,
Postman and «In-Time» -
10%+
In e-comments Ukrposhta also losing
out to other postal operators and
private couriers
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21
20
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3
4
2 1
How did you get your e-commerce
orders?
Picked up at courier services
Picked up at or delivered by Ukrposhta
Courier delivery to the door
Picked up at the seller's facility
Picked up from terminal (poshtomat)
Courier delivery to front porch
Did not use delivery service
Others
Nova Poshta, In-
Time, …
Source: 1) GFK Research. 2) Ukrposhta
1 – Current assessment
and industry overview
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… while using extremely heavy “soviet” infrastructure with very limited investment in IT and new technologies
$67.8
$60.2
$20.9
$15.1
$12.8
$7.5
$6.5
$5.4
$5.4
$3.2
$0.3
$0 $20 $40 $60 $80
United States Postal…
China Post
Deutsche Post
La Poste
Royal Mail
Brazil Post
Swiss Post
Poste Italiane
Canada Post
Austrian Post
Укрпошта
Total postal income for 2014 (B USD)
Ukrposhta has more extensive “rich” infrastructure
than postal operators in the developed world…
… while losing to them by a mile in
terms of income…
… and investment in the future (IT
and infrastructure)
29%
15%
7%6%5%
4%4%
3%2%
2%2%
1%
1%1% 18%
Total IT expenses in postal sector for 2015
- EUR 20.1B
USA Japan
China Germany
UK France
Canada Australia
Italy Brazil
Middle East Spain
Sweden Russia
Other countries
Ukrposhta -
$ 100К?
For all the companies – only income from postal
operations (letters and parcels). For Ukrposhta –
total income. Postal income is around 65% or $
0.2В
• The smallest service area per 1 post-office in the
world – 53 км2 vs. 195 км2 in developed countries
• The smallest number of people served per 1 post-
office 3,930 vs. 5,305 in developed countries
• 1.7% from the world’s postal employees with
substantially smaller income share
• One of the smallest in the world number of
serviced population per 1 postal employee - 539
Sources: 1) United Postal Union, 2014 statistics. 2) Upheaval in the Global Postal Market. PAC White paper 2014. 3) Ukrposhta
1 – Current assessment
and industry overview
Africa
Lat.
America
and
Caribbean
Middle
East
Asia and
Oceania
Developed
Countries
Eastern
Europe
and CIS
Ukraine
% of postal offices 2% 7% 2% 47% 26% 16% 1.7%
Service area (in km 2) per
1 postal office 1,520 421 969 72 195 229 53
Population per 1 postal
office 67,900 12,831 25,950 12,106 5,305 4,555 3,930
% of postal workers 1% 4% 2% 32% 46% 14% 1.6%
Number of people
(population) per 1 postal
worker 15,607 3,034 3,350 2,317 381 643 539
• When salary expense comprise around ~ 70% from total operating expense1 …,
• … with average salary ~ 1,900 hrivnas (~ $ 74) per month
• … investment in IT and technology at a minimum
• … all major procurement purchases are less than 10% of total expenses
• … all major postal volumes (except parcels) and pension volumes will continue to drop in the near future
• … concentration of corporate business among top-5 clients exceed over 50% in some segments
Pure cost cutting will not help to finance reforms and improve financial results over the next 1-2 years as
A. It will be “eaten” by at least small increase in salaries and
B. necessary investments in IT and Logistics (potentially M&A to make up technology gaps)
6
What do all these factors mean for Ukrposhta? – the company needs radical internal reform with substantial legislative and government support to remain profitable in the years to come
Touch internal reforms require financial and legislative support from the government
and Verkhovna Rada, especially in “unpopular” steps
How would I propose to pay for the reforms?
1. Improve current operations, with particular focus on
sales increase and commercial function
2. Review of Universal Service Model with potential
radical changes in delivery standards, especially in
remote locations (covered on the next slide)
3. Debt financing from international institutions (IMF,
EBRD, …)
4. Bond issuance
5. Consider sale of 25% shares on exchange or to
strategic investors
6. Commercial and state bank financing
7. Introduction of postal tax on post operators not
delivering across the country (i.e. 0.5% from revenue
like in Brazil to maintain Universal Service Model )
2 – reform proposal for
Ukrposhta
Source: 1) Ukrposhta
• Substantial increase in financial income
• Creation of the postal bank with focus on communal payments, retirement payments, consumer loans, as well as SME loans and factoring
• Share increase in express and courier delivery segment
• Focus on corporate segment (take share from private couriers)
• Outsourcing partner for internal and external mail for corporate customers
• Defense and increase of market share in parcel deliveries Утримання та зростання долі посилок
• Partner programs with e-commerce operators and e-stores
• Logistical support for SME segment
• Center of government services (why built new centers when poshta has substantial unused offices and personnel)
• Center for e-government services
• Center for various services requests (government note, potentially passports in the future, etc.) and document receipts
• Collection, analysis and sale of marketing data (big data)
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2
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4
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I propose 5 major levers to increase Ukrposhta’s income2 – reform proposal for
Ukrposhta
1. Transparent purchase and tender procedures (including commission agreements, etc.)
2. Change in organization structure and corporate hierarchy (delayering)
• Example: cutting a number of directorates from 26 до 5-6
3. Personnel reduction (including management) given personnel costs ~ 68-70 %
• However, substantial increase in salaries for key positions, i.e. commercial function, IT, logistics, etc. Average salary at 1900 hrivnas substantially increase operational risks
4. Optimization of price, terms and conditions of delivery
• Sensitivity analysis in terms of costs vs. tariffs (tariffs in general must reflect real costs, if someone if willing to wait, let’s use it) –potential move from Universal Service Model to “Selective” service model
• Implementation of new technology, including sensors (if postal box is empty, no reason for pick up)
5. Increase in efficiency for mail sorting and routing
6. Real estate optimization in order to increase rent payment and sale of unnecessary buildings
7. Optimization of postal network, potentially with Oshadbank, Ukrtelecom, etc. Potential use of mobile offices
• Ukrposhta has over 5 000 offices in small cities and villages, Oshadbank ~ 2 300
• Use of partnership network, as done by top companies, such as UPS, USPS, FedEx, TNT
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7 major steps to cut costs
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2
3
5
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2 – reform proposal for
Ukrposhta
1. Implement immediate financial control measures to assure safety and optimization of the company’s financial assets
2. Within first 3-5 months, with participation of independent consultants, clients, government and Rada officials, develop and approve long-term Ukrposhta’s strategy (including realistic financial plan and model and and IT strategy)
3. Complete all the necessary corporate procedures, including appointment of independent members and experts, and consider privatization of 25% of Ukrposhta
4. Undertake full independent audit of financial results, real estate assessment and IT and infrastructure assessment
5. Begin negotiations with various government, private and international lenders (EBRD, IFC) as to the potential financing of Ukrposhta reforms
6. Register Postal Bank (or acquire banking license) and undertake necessary steps to begin its work in 2017
7. Change organizational structure and top management (where necessary per assessment results), especially in commercial function, finance, security and IT
8. Develop and implement by the end of 2016 new compensation and motivation system
9. Review tariff structure and service model and implement necessary changes
10. Develop and implement “quick wins” as for new product launch, sales growth, cost cutting measures, as well as rent agreement and real estate optimization
9
What must be done in 2016 – first 10 steps2 – reform proposal for
Ukrposhta
Why me? – solid reputation and successful experience as a crisis manager
Key position requirements My qualifications
Education: Higher education, MBA preferred • Bachelor of Business Administration, Pace University, USA, Certified
Public Accountant – CPA
• Juris Doctor, George Washington University Law School, USA, NY and NJ
Bar Admission, Member of American Bar Association
• МВА with honors (top 5%), Georgetown University, USA
Main qualification requirements: Candidates must show top management experience in all 5
categories:
1. Ability to manage change (Strategic vision)
2. Result oriented
3. Communication:
4. Ability to build and manage teams
5. Business skills (Financial management, HR, Management of production processes)
• Over 5 years experience in top management consulting firms (KPMG,
BCG). Over 10 large scale strategy and operational efficiency projects for
top companies in CIS. Development of change and project teams, most of
which continued to successfully function after my departure.
• Manage most successful M&A projects in a banking sector in Ukraine and
Russia.
• Most of the people I worked with are ready to do it again
Professional experience:
• Over 5 years in the top position, managing large companies (over 500 FTEs). Experience with
international companies a plus.
• Experience in change management and efficiency improvement projects
• Knowledge of postal industry and its key trends;
• Experience in business development in an online segment a plus;
• Knowledge of key enterprise’s financial and economic drivers;
• Experience leading negotiations at the highest level as well as conflict resolution experience
.
• 3 years as Chairman of the Board for 3 regional banks (1500 FTE), as well
as 4.5 years as Director of M&A and Asset Management. Over 8 years (4
as a Director) with international companies such as BCG and KPMG in CIS
and USA
• Crisis management o troubled banks: cut costs by 40% while increasing
assets and liabilities by 200%
• Experience in development and implementation of online, IT and
operational strategies
• Experience working with and presenting to top management and high
level government officials
This is how my colleagues write about me in social media in 2016 – 5 years after the end of the project: Alexander Turchin, IT Director for one of the banks
Alexander Turchin What is interesting is that only once I could observe a top-manager, who was not a specialist in any of the mega-project’s areas, however, was highly effective in achieving its goals. Why I am writing here – this was a project with total demolition of existing management structure and building new one from scratch for integrated companies. That M&A was brutal and without any compromises. Igor Smelyansky, respect for your work.
Like · Reply · 2 · February 27 at 2:22pmDiscussion of an article “How new top managers destroy companies” This is about risks of changing top management in large companies and
consequences of ignoring rules of effective management10
3 – candidate
competitive advantages
THANK YOU!
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