Interview Logistics and transportation

Igor Smelyansky :”A trump of new team is a publicity which gives a chance to reforms”

Sensational position assignment of Igor Smelyansky, the CEO of USEP«Ukrposhta» has not left indifferent any business edition. LD has been waiting for this interview in the queue, having heard a lot of interesting about plans of upgrade and transformation of USEP «Ukrposhta» to the business project. In fact, the conversation was business, with emphases on  items which  are necessary to inform. 

Igor Smelyansky, who has been holding a position of the head of «Ukrpochta», is the manager of the Western sample. He willingly answers the questions and practically shares plans how unprofitable state enterprise with pleasure.  I. Smelyansky, as the experienced representative of crisis management, plans to turn into the business organisation. We heard answers to questions why sometimes it is necessary to make the choice between a computerization and wages increase, what tools for this purpose will be required and how he sees the prospect and the main benefit of  USEP «Ukrposhta»,what has already prevented developing .

LD: Igor, you headed the state of the non-profitable entity, having promised to turn it into the organisation with attractive assets. Tell about the sizes of losses and the next plans.

I.Smelyansky: Any entity is a question of calculation. For example, last year the profit of USEP«Ukrposhta» according to the reporting, constituted  51 million hryvnias. At the same time, wages increase on 100 UAH to each employee. It has been already 109 million hryvnias in a year.It is possible to deliver computers in 60% of offices of USEP«Ukrposhta»for this money. We haven’t a computer in 40% of departments now.  I understand also another: USEP«Ukrposhta», as if I didn’t want to see here only business is a social entity. For today we have had 76 000 employees, 11,5 thousand points from which 2000 generate nearly 90% of the income, and, respectively, 9,5 is only 10%.

However, practically, in one country of the world, the rural office doesn’t earn.  I am confident that they can be made less unprofitable. The entity, in general, is more profitable. Therefore the following question is: how many fund we can direct to aim at the development? How many fund we could use on profit? It is possible to aim, for example, funds for the development and a construction of the logistic centre. It is possible to try to squeeze out a maximum of the company on a short-term interval, declaring the profit and giving to the state dividends. As for USEP «Ukrposhta», I have a priority task: the development of a long-term model of development which will show how many it is possible to invest and how many means can remain.

I conduct a dialogue with state agencies in the pragmatism approach: we have revenue 4,4 billion, 1,2 billion from them  is a pension payment, 300 million., etc. In fact, 40% of our income,  are that income which we give every year to the  banks and other financial institutions. What  to do with it? We should learn how  to earn, or it is necessary to expect grants from the state.

LD: How our state is interested in the financing of the entity which is the one of the main in Ukraine? We understand that if USEP«Ukrposhta» doesn’t work, everything will stop or almost everything, beginning from the judicial system, finishing with banal correspondence between the entities and simple citizens.

I.Smelyansky: I wish that USEP«Ukrposhta» was the self-sufficient organisation.I believe that we will be able to make it. For this purpose, I ask to give me the tool. For example, in many countries of the world, if not around the world, there is a monopoly for delivery of envelopes of the national post operator. We have it too but on paper only. We know that there is a mass of the companies which win tenders though in this case. There is  no tender existing at all.Nevertheless, they win it, bringing the same envelopes to our offices, pay to our mail carriers. They may carry their products. By the way, it is the  money which could be in the budget of USEP«Ukrposhta» that would allow it to be more solvent and to pay more high salaries.

LD: Could you tell more in details about financial transactions:  is there a speech about already existing opportunities or do you want to be beyond it?

I.Smelyansky: Certainly, I want to expand them. Moreover, I consider that it will be very useful for the country. 30%-40% of Ukrainians have no bank accounts in regions, and if  USEP«Ukrposhta» doesn’t open them, it never there will appear, especially considering that banks reduce the presence in the remote cities and villages. For now, USEP«Ukrposhta» is a transit management. We received money for the light and sent it immediately. We received pensions and paid it on the spot . What I have mentioned before would lower turnover of cash in the country.We will be able to operate accounts. The number of deposits in the country will increase only at the expense of it.  It’s the money for the Ukrainian economy and we, in turn, will be able to earn on it. It is further  when payments  are carrying out . As soon as we have money on the account, we will be able to accept and send payments. That is I am interested in functionality and an opportunity to open for people accounts, to attract deposits and to issue payment cards. Ideally, I would like to credit. Perhaps, we will credit through agency network.

LD :Do you want that USEP «Ukrposhta» will enter the market of banking services?

I.Smelyansky: We have been already there. We accept payments for one billion dollars. Just it should be civilised. And as soon as we will make it, I hope that we will have 3 billion payments. For example, now all payments in Ukraine consist of two steps:  at first,  you receive the account and then pay for  it. I want to create the application both on the website and in our departments when the person, having come to the department, already has the account. He just needs to open the mobile phone with the loaded application in which accounts will be already created.The person just will need to press the button. In this case, we will make a product so convenient for the client that he will be able to solve one button everything but not to hammer a large number of figures. In that case, I am sure, remote payments will increase and we will increase a flow of clients.

LD: Could you tell  about the planned long-term strategy.  Are you  going to master the international market? if your answer is yes, what is the  offer or a product?

I.Smelyansky: Concerning strategy  is a question of servicing and competition. We have strong competitors, and I respect them for what they have made. A good example is our main red-white competitor. They have a remarkable product but it is the  only one. Their delivery is provided on the next day and it costs money, considerable to the Ukrainian measures. If to speak about the development of e-commerce, we have a poor country and many goods cost less than 40 hryvnias. In many cases, delivery costs 40 hryvnias. To pay 40 hryvnias for product  delivery which costs much less  than  the  same product there is no any sense. Therefore I stand on debugging an economy segment. If we are able to organise delivery for 2-3 hryvnias in 10 days, goods quantity which gets to a category of e-commerce  considerably will increase. It’s first of all. Secondly, we will give the chance to a large number of departments in villages for the first time in life to use not mobile shop with a set of goods which is there but  to master catalogue trade for 2-3 hryvnias.It has been development and already a new business. In other words, our strategy is in going in that place  where there is nobody.

LD: To come to desirable indicators and to have an opportunity to compete, it is necessary to upgrade the equipment of USEP«Ukrposhta» which became extremely outdated. At the expense of what do you plan to carry out the upgrade?

I.Smelyansky: The most necessary for us  is a computerization. We need the costs for the implementation of this process. There are three financing sources at the moment . The first is own costs, the second is borrowing facilities, and the third  is the donations. We will use all three combinations and begin to implement it where it will be demanded by people. I perfectly understand that if USEP «Ukrposhta» image is not changed in the cities, I won’t be able to attract a new segment.  People  just won’t come to me. It is very long-term process concerning service quality, for example, of our favourite queues against which I will mercilessly fight. Gradually there will be a program of the upgrade of offices. Though it is the very extraordinary thing because there are people who got used to how everything works now and if to begin something sharply to change, they will just cease to go to us. They got used to it and to them is so comfortable. Therefore it is very difficult task for me as for the head to make the similar branding decision. Though I need to refresh image,  all updates will be carried out gradually.

I understand that for 1 year we have realiseized it. We will  have been able to do it since the computerization.  I realize that many people in the remote cities and villages will  see the computer for the first time. It means that its interface shall be the simplest and convenient, both for consumers and for employees.

LD: How do you plan to attract the loans and on what conditions?

I.Smelyansky: I consider all options. The credits, for example, from the international institutes of development are, as a rule, more profitable. At the same time it is necessary to understand that if we don’t reconstruct our logistics, we will never have had high-quality services. There is a necessity in new sorting centres in order to have a normal logistics in a case with USEP “Ukrposta:. As we understand it is impossible to consider this as means for a construction something big.If it is natural, we won’t do without borrowing facilities but the same normal business project. It is stated companies but at the same time, there is a business company, construction of the new logistic center miscalculates with an increase in a shipping speed, service quality and so on. Therefore we plan to work with all, especially tenders according to the law of the attraction of borrowing facilities shall be held and the one who will provide the best conditions will win.

LD: Have you had already some offers, perhaps, you already have considered someone as partners?I.Smelyansky: I met all leading international organizations, the EBRD, IFC, but before to carry on a talk on the credits, the company shall have the financial model which is absent now. For example, if tomorrow we increase twice amount of sending  nobody can answer whether we will be able to pay the credit. Therefore for me as for the top manager, it is important to understand what will be. For example, the amount of written correspondence will fall even if we  work round the clock. It should be pledged in the plan if the amount of e-commerce grows respectively.  It is necessary to pledge that it will grow in the plan but, not 100% per a year. Having constructed such model of business, we can look what expenses we afford, and what couldn’t. A priority for me to construct such model that I could talk to the regulator not ghoastably, but by specific figures.

LD: How the state is ready to delegate powers to the board of directors taking into account the read far-reaching plans?

I.Smelyansky: Such discussion sometimes passes into the legal area. For example, how many shall be members of the board of directors, in what proportion, dependent and independent, who have to be a chairman and with what powers. For example, CEO model is the board member in the American form,  Europeans  don’t have a model. What should I do? There is a lot of similar questions. To speak about an ideal model, it is still premature because each theory needs to be proved and the state has a different vision of the situation, for example, who on behalf of the state shall be provided on the board of directors, in what quantities, in minority or in the majority. If, for example, in minority as the social function of the company will be protected. There is a lot of such questions. There are no definite answers on them. A search of compromises and search of the model which will allow the company to exist is necessary. Our task on figures and examples to explain what we will achieve if we go on this model and what we won’t achieve if we choose  another.

LD: Do you admit an involvement of the non-resident shareholder? What could be the mechanism of protection of its rights?

I.Smelyansky: We have already had a legislation of Ukraine on the rights of investors,  especially foreign. Any non-resident shareholder will consider risks and benefits but I don’t think that now some potential investor will come here. Most likely, it will be some international institutes which have  already presented in Ukraine and understand how to them to protect himself.

LD: Do some guarantees imply future credits? If your answer is yes, who do give it to them?I.Smelyansky: We didn’t study it in details.There can be a mortgage credit. We understand that we don’t need the old logistic center. That’s why  we build  the new. The old we give as the calculation for the credit.It is settlement schemes there can be a set. I once again want to focus the attention that  I will do everything in order that it was the business organization.

LD: In order to USEP«Ukrposhta» has become the business organization, it is necessary to change its form of business, that is to reorganize. At what stage does  this process now?

I.Smelyansky: It is one of the main projects which I keep now. We are engaged in so-called corporatisation and competition on assessment of company assets which will be made on September 30. We announce a competition on audit, confirmation of balance which will be ready at the same day too. Most likely, within two weeks we will announce competition on the international audit for 2015-2016. Everything will help us to pass to international to accounting standards. If everything goes according to the plan, I hope that in the first quarter of the next year, we will already become the new organization with the independent Supervisory board and the board which now we don’t have too. Now we live according to the annual financial plan without something long-term. For example, if in the financial plan there is an expenditure item – “advertizing”, I can use it. If it isn’t there I can’t use. Otherwise, it will be regarded as “state cost theft”. It is not really flexible tool. For example, if we sharply earn in addition 300 million hryvnias, we with them will make nothing, even we won’t spend for computers because it isn’t pledged in the financial plan. It very much prevents to develop it  only by reforms with which we will be able to approach more civilized management model.

LD: If  USEP«Ukrposhta» is  reorganized into a joint stock company, will the state as the owner of the company  raise additional resources for an increase in competitiveness due to a sale of shares by the next year?

I.Smelyansky: I suggest to assess a situation pragmatically: we need our development program if we are able to finance it at the expense of own means. If borrowing facilities are necessary, it is quite good too. If we understand that neither the credits nor own means help, it is necessary to consider other sources. That is we will take all options into account.  We won’t consider only one option in our case.It is not development. I, as the western manager, understand that presence of the non-resident shareholder will give transparency.It means that on the board of directors it will be impossible to make the wrong decision and when there is no such shareholder , it is just possible. But it shall be step by step and it is provided to development strategies.

LD: How does  your profile ministry treat to your plans and the expected reforms? How do they react to the involvement of external consultants in the solution of similar questions?

I.Smelyansky: First of all, we have a strong support from the Ministry. It is the truth. If we hadn’t had it , we would have performed a lot of things in a month. As for means for external consultants, it is money from the international financial institutions but not for the  budget. They are necessary for acceleration of reforms. It is small amounts but we use them for receipt of the international experience. It is much more important to hear that not Smelyansky said it. It is said by those people who are qualified in  the  creation of the financial model. Sometimes we need an independent look.  I could make a mistake too. It is an opportunity to quickly get the international experience and to compare the working of idle models. Of course, a look is superficial, undetailed but it will allow to begin to do everything nearly tomorrow.At the same reforms demand to do it yesterday …

I can give the arrangement with the EBRD about the donations as an example.It is really free because I won’t provide a source of payment of this debt. We didn’t hold any tender. It is just the choice of the EBRD. We will work with those who  will be chosen for us. Therefore, except the help, it doesn’t cost anything. Unfortunately, it is not really large amounts, but we will receive a new view and invaluable experience of successful business models.

LD: What are you doing, is new to USEP«Ukrposhta» and  nobody had said about profit or the financial plan so openly before, or a business model that he very much surprises many. What are your further steps?

I.Smelyansky: It is the state-owned company, especially,  the third employer in the country and something to hide is silly. If competitors want to learn something, they have learnt it even earlier, than I will come into the office. The second is: if we go to the fact that it is the public company, it means that  is necessary to report publicly  f.i. about management salaries. I told also about the salary and I am not going to hide it. If information is open, it leaves fewer questions for a sneer company.For example, I declared the salary. It was discussed and the subject ended. The same concerns also my top managers. It is open information. We will know what to tell employees and society about how payment was  justified of  salaries payment, the cost reduction and/or increase in the income.

The benefit of a new team is in what we have nothing to hide. The  openness of USEP«Ukrposhta» is a chance of reforms. The  reforms are new products, improvement of service and openness. We have  saved 2,5 million on envelopes and canceled the wrong tender for purchase. We tell about it to our audience. It is what shall change the image of USEP«Ukrpochta». Nobody tells about the production questions, commercial contracts with suppliers or consumers. The development strategy shall be discussed publicly.  I am confident that such openness is the key to success of reforms of any state-owned company. If something begins behind a door, surely there will be people who will want to resist to reforms. As a rule, they have won. It is much more difficult to do it under the supervision.

The conversation was conducted by Zhanna Garashchuk and Artem Ustyugov