Interview Logistics and transportation

“Nova poshta” business model could make to perfect in the local market and to replicate in other countries”

For this purpose is important to be enhanced in already provided services, to work on their quality. That was the main message of Daniil Pasko, the head of the “Nova Poshta” LLC Supervisory Board, to whom the Lawyers Daily came to talk about the next plans and a strategic development. We  also to learn the reaction of the company to the declared plans of “Ukrpochta”at the same time. We have learned: a reaction  is valid and even friendly.

Daniil Pasko, the founder of Easy Business public organisation, the coauthor of “The professional government”, graduated student  of Harvard  sees themselves as the popular manager in emerging markets, including Ukrainian. After format dialogue and just communication with the person of so deep analytical thinking, you begin to understand more deeply “increase the strengths” expression  value and it make you move forward. LD, for example, as the business edition, knows the price of reputation and unique history of the company beyond doubt now. This question, among other, was also mentioned in a conversation with Daniil.

L.D.: It would be desirable to begin a conversation with that question: how do you feel at a position of the head of the Supervisory Board “Nova poshta” LLC?

D.Pasko: I have been working with “Nova poshta”LLC more than a year, from the moment of creation of the most supervisory board. Until appointment to this post, I was the independent director. By the way, you shouldn’t overestimate this position because his head is appointed for a year, which mean that this year I have been occupying this position, and in the next year there will be a rotation and another person from structure will hold the position of the head. Generally speaking, which is the concern for my work experience with “Nova Poshta”, I am delighted with this company by its shareholders. These are the best examples of the Ukrainian entrepreneurs.

In general, I divide the Ukrainian business into 2 parts: oligarchical and entrepreneurial. Oligarchical is a business which parasitizes on a state-owned property. It is, as a rule, concerns a  dishonest privatisation, or receipt of some asset and the order to them, for example, when the state  is the supplier or the buyer of any resources f.e. oil or gas.

 I call the business as entrepreneurial, which people constructed from scratch and removed on the national, regional or international level and which makes quality products and services. Such business imposes me much more because entrepreneurs are people who enclosed own intelligence, time and resources in a construction of an effective and high-quality business model. Such model  acts on the markets where the state doesn’t influence the competition.

I want to tell that for a victory it is necessary to create a quality product. Such example is also the Nova Poshta LLC which has become the market leader in express delivery and  hasn’t been connected with the state in any way, nothing from it is received and sells nothing to it for 15 years. We create the high-quality service which is necessary for people. Here I admire such business.

L.D.: Could you  tell about the development strategy of the company:  is it under construction only for a year or  is it possible to speak about long-term plans?

D.Pasko: It is important to understand that the supervisory board differs very much from operation management in business. It has a certain set of functions which come down to strategic management.

  • The first  is the purpose of a top management. It is CEO, CFO and assessment of results of their work with the subsequent appointments or replacement which depend on the carried-out assessment. It is the main function of the supervisory board.
  • The second function  is a long-term strategic. We speak about long-term goals and providing with resources for the achievement of these purposes.
  • The third function is a risk management. It –is a compliance which includes questions of the reporting, tax payment, a debt load that is everything which is connected with commercial and non-commercial risks.

Now it becomes clear that the supervisory board doesn’t make the decision daily. For this purpose, there is an executive group of managers. The supervisory board is the authority, performing only long-term functions. In its list today 8 people : 3 are co-founders and 5 are independent directors. At the same time, my role consists in forming of the agenda and management of  decisions preparation which is passed by the supervisory board. Also, I provide an opportunity to each member of the supervisory board to express the opinion which shall be heard.  I provide transparency of decision making and I can influence them but I don’t replace the whole body in decision making.

L.D.: What are next plans for the development of the company? Do You plan to remain in that segment which has perfectly mastered for today, or, perhaps, to enter  the new services ?

D.Pasko: Very soon the Nova Poshta company will have a strategic plan for the next 5-7 years. It is the feature to what we go now. Last year the supervisory board worked on a format of the strategic plan and we started its creation just a few weeks ago. We expect to finish this year with a ready result.

Among other things, the plan will contain a mission and vision of the company, the analysis of external and internal environment. The external environment is the Ukrainian market and world trends.  The internal is what happens today in the company (the operating system, people, etc.). Then the purposes for 5 years are placed in the places and the plan of their achievement then we begin to analyse resources, necessary for this purpose appears. As a result, we have  received the  financial model for a period of 5 years and with its accounting, we create a complex of key performance indicators (KPI). It is what we have already worked on.

Personally, about me, I consider this question in two planes: horizontal and vertical. Vertical  is what products and services we sell, and “Nova poshta” LLC is the biggest company in Ukraine on express delivery today. In addition to this, we have still very actively developed  other services, for example, financial (money transfers in the cash desks located in our network of departments), the international delivery, a fulfilment. The “Nova poshta”LLC has  already removed all their transactions on delivery from many online retailers.They would be concentrated on sales and we concentrate on the store, sorting, marking and the goods delivery.

If we speak about further plans, most likely, we to be focused on already provided services. We want to enhance the quality of the existing services before bringing new to the market.

And the second plane, horizontal, geographical: to remain in Ukraine or to move further. We are already have been presented not only in Ukraine, “Nova poshta”LLC has affiliates  in Moldova and Georgia which  also work. The work experience in Moldova showed that our business model is replicated. It can be repeated also in other countries. Therefore I think that it would be possible to consider the markets of the neighbouring countries for development. I mean Belarus or Kazakhstan. We will make   the business model in the local market by the perfect level, we will be able to replicate it in other countries. However, the question appears here:  developing integrally or to buy the player who has considered situationally.

L.D.: Do you consider the development of “Nova poshta” LLC affiliates ?

D.Pasko: Infrastructure of the company consists of affiliates which we have more than 2300 in our country and 37 terminals which create conditions for internal and international logistics. The main part is departments which are practically in all settlements of Ukraine. Until the end of the year, we have been planning to open more than one hundred affiliates.

According to terminals, most of them we lease today. The leased areas not always conform to our technical requirements therefore now we build the national terminal near Kyiv where we plan to direct an essential part of our cargo flows. Taking into account that we build it only under ourselves, we plan to buy the modern equipment and  make the  handling capacity  higher than leased. Here we will be able to implement the most modern technologies of safety and energy saving. As a result, we want to make something between what we have in “Nova poshta” LLC today and the technological logistic centres of world grandees, where using a human labour power which has already tended to zero.

That is meant that our purposes on a development of infrastructure  are to expense a branch network and to construct the national terminal which will allow transferring  an essential part of freights to it.

L.D.: Does it mean that the national terminal is under construction: for themselves or for the funds which were raised from external sources, perhaps, foreign investments?

D.Pasko: This is an excellent question concerning not only constructions of the terminal. Until today’s moment the company has developed due to reinvestment of own profit and has not attracted external resources. In the future “Nova poshta” LLC will plan to address for financing external sources: we conduct negotiations with banks and not only with them. Already now it is obvious that for implementation of all is provided by the strategic plan. We will lack own resources. It is  possible that after a while the company will consider the possibility of placement at stock markets, most likely, European, and as partial decision, perhaps, we will address also for external financing.

L.D.: What financial institutions for the attraction of the credits do you consider more attractive?

D.Pasko: If to speak about the credit, it is necessary to consider the cost of money and length of this financing, that is what percent we pay and for what time the loan is granted. And if this money goes to a construction of infrastructure means, they are long term, that’s what we also want. But besides, there are also reputation indicators. For example, if the company credit IFC or EBRD, it is a signal which indicates that the company transparent, stable and shareholders are respectable and politically aren’t affiliated. Of course, we will prefer the international creditors who in addition to money give also such positive signals.

L.D.: How do you protect the assets, taking into account a construction of a national complex and expansion of a branch network ? Do  you work on the strategic protection of assets in principle?

D.Pasko: Probably, the risk of reservation of ownership right for emerging markets and for Ukraine is a key.It is important both for local and for the international investors. Unfortunately, the property right in Ukraine is protected insufficiently and historically. It has been developed that questions of raiding and corporate captures were painful and sharp.

We try to protect ourselves here with the following: first of all, not to retain weak points. We pay taxes and we are a respectable employer.  there has no history of privatisation at “Nova poshta” LLC which can be challenged. We carefully research the status and we track history of those real estate objects which interest us. It, certainly, is important for us. When we will attract the loans, we will carefully check the history of creditors and to analyse whether this partner is comfortable for us.

The similar situation is with the attraction of capital stock. We won’t attract something from subjects which are disputable and can bear such risks. Our strategy in the protection of assets   is simple: to be in the right field, to observe the Ukrainian legislation, to pay taxes and to avoid any corporate disputes.

L.D.: Does it mean that “Nova poshta” LLC is impregnable and has it no weak points?

D.Pasko: I would like to tell “yes”, considering that the head of the supervisory board is responsible for risk management. (he smiles) about 18 000 employees and 2300 affiliates work in our company. Last year we  delivered 93 million departures. I sound these figures to outline the scale of the company. Knowing them, it is impossible to be signed under the fact that probably, we have no weak points. It is possible to claim unambiguously that if to compare the”Nova poshta” LLC with other entities of the same size, probably, we have less weak points, than others.

L.D.: How do you estimate the possible competition between the “Nova poshta”LLC  and USEP “Ukrposhta”money transfer service?

D.Pasko: It seems to me that for USEP Ukrpochta is the very important component both from the point of view of profitability and social function. Today Ukrpochta locates at many Ukrainian citiesю If they realise this purpose (the purpose to turn it into post bank was created by a management of the company), it  will become a window to the world for many citizens. By the way, it is useful also for USEP Ukrposhta which can take additional benefit from already existing infrastructure.

It is still a small income structure component for us. Even if USEP Ukrposhta is succeeded in this service, we won’t suffer essential losses. The matter is that we are still focused on delivery of sending. It is a little bit another format of work: other creation of infrastructure, focuses on quality and the minimum loss, on client service. It is a value added format.

We work in different segments and we should develop this market together. Also, we should make much jointly to reach the service level which was accepted abroad. We are allies than competitors in this purpose.

L.D.: Does “Nova poshta” LLC  plan to develop the services in depth, for example, to occupy free niches in a segment of post deliveries?

D.Pasko: Of course, we will provide new services. Our benefit is that we have the minimum investments which can increase the income, providing those services which are in the current list. As a rule, we use the existing technologies, the existing infrastructure, which already  have hired people, adding only a little. The start of new service is always additional investments and risks. For example, it can be insufficiently demanded, insufficiently fulfilled from the point of view of operational processes. Therefore it is always better to concentrate on already existing services. We see opportunities in the market which nobody has undertaken, for example, expedited shipping in several hours between the large cities. In general, the market is still complete of opportunities and space. We have what to do and develop. Our work will be enough for all.

Dialogue was conducted by Zhanna Garashchuk and Artem Ustyugov

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