www.ukrposhta.ua

FUNDAMENTAL TRANSFORMATION OF

UKRPOSHTA2017-2021

Ukrposhta today

«Ukrposhta» - appointed National Postal Operator with functions deriving from directives ofUniversal Postal Union

• 11 300 branches covering 29 700 settlements

• 75 000 employees 33 000 of postmen (3-d employer in the country)

• about 50 various services

• 13 000 of real estate units amounting 1,7 mln sq. m. (incl. 400 000 sq.m. under lease agreements)

• 3 700 car fleet

• Processing and delivery to consumers:

– Regular mail: 184M

– Parcels: 15M

– Pensions: 74M pensions and financial aid amounting to UAH 120B

– Payments: 181M processed payments amounting to UAH 25B

– Periodicals: 548M

2Note: all data for 2015

However, assets are significantly worn out

30% of car fleet with 0 км car mileage

80% of branches does not have computers*

100% manual sorting and low automation

*64% computers 5 year+

Ukrposhta is losing clients and market share…

74

95100

109

-32%

2014

83*

201520132011 2012

Pensions paid via Ukrposhtareduced 30% during 5 years

29

18(62%)

2013

72

51(74%)

49

69

11(38%)

16(22%)

56(78%)30

(61%)

20122011

19(39%)

76

15(20%)

61(80%)

Ukrpost

2014

Other operators

2015

18(26%)

Ukrposhta lost market share in the growing parcels market

parcelsmln.

pensions in mln units

*2014 decline 7,1 mln. units caused by annexation of Crimea and military aggression on the East of Ukraine

… and in fact was cutting personnel, branches and delivery routes

93,098,1 95,4

75,475,885,5

-23%

Employees ‘000

Number of branches‘000

11,312,712,9

13,7

-18%

11,4 11,2

Transport‘000

12

4,24,2

2011 14 113

3,7

201615

4,2

3,73,7

1 Y2014 compared with Y2013 due to military actions and territory annexation personnel decrease 3,4 th., branches 1,2 th., transport 0,4 th.

26 25 24 23 20 19Average mileage , th.km

4,43,9 3,73,7 3,94,0

RevenueUAH M

2541

-4

273626

Net incomeUAH M

2016151413122011

New management team has launched the transformation of Ukrposhta…

… with several quick wins already realized

Saving on procurement of UAH 55M (more than 2015 net income)

Retail revenue growth of UAH 21M in 3 months

Renegotiation of wholesale prices with Top-10 suppliers increased margins by UAH 10M (annual run-rate)

Purchased 3500 new computers for regional offices and branches

Execution of corporatization plan: registration of JSC “Ukrposhta” and new Supervisory Board expected in 1Q17

Cooperating with EBRD on strategy development and optimization of logistics network

Launched service quality improvement program with employee trainings and renewed service standards

We propose to transform the company through aggressive revenue growth

202116 171514 1918 202013

Profitability,%

RevenueUAH B

Ukrposhta growth and development will also have a significant effect on the overall economic

• Increase of access to financial services of the “unbanked” population

• Promotion of cashless economy

• E-commerce driver

• Increased access to public services

• Development of infrastructure

Mail and parcels

Other1 Retail2

Financial Services

1% 0% 1% 0% 1% 1% 7% 10% 13%

1 Logistics and fulfillment, advertising, government services, etc2 Accounting only for our sales commission (margin)

мільйонники дуже великі великі середні малі смт села

Netw

ork,

%Укрпошта

Банки

Ukrposhta is uniquely positioned to provide financial services to the 47% on unbanked Ukrainians

Cash economy

27 000 of settlements

15 mln of people

• Absence of financial infrastructure• Cash operations• Inaccessible basic financial services • Poor financial literacy • Poor SME access to

Ukrposhta

Banks

Metropolis Large city City Large town VillageTown

Banks Ukrposhta

Coverage

localitypopulationlocalitypopulation

Significant investments are needed to drive our revenue growth

70

128

107

111

21

507

Mailbox replacement

Total

ATMs and payment terminals

Logistics and sortingcenters

Transformationsupport

IT

38

POs refurbishment

31

Car and truck fleet

CAPEX 2017-2021, USD m Напрямок використання

▪ Replacement of missing and broken mailboxes (20-30%)

▪ Reduction of average car fleet age to 7 years (~4,000 new cars and trucks)

▪ Switching to 5-7 logistics and sorting centers from current 35

▪ ~2500 ATMs and payment terminals for financial services

▪ PO computerization, ERP/IT systems, network security

▪ PMO support, re-branding, consulting

▪ New format for 2000 post offices and refurbishment of sub-standard offices

We see cooperation with international donors in several key areas

1. Transport fleet modernization

2. Logistics and sorting centers optimization

3. Service development and post office improvement

4. Environmental, energy efficiency and safety programs

Mixed insourced/outsourced modelAs-Is Setup1

Ukrposhta’s car fleet requires urgent modernization

2

• ~ 80 million km total annual mileage

• 99% own fleet dependency• 14 years avg. vehicle age• 30% of vehicles are not operational

• Optimized mileage due to GPS tracking system

• 80% insourced / 20% outsourced• 7 years avg. vehicle age• Green fleet solutions introduced

Introducing vertical control2As-Is Setup1 Physical network optimization3

Planned logistics network development

Illustrative Illustrative Illustrative

• 35 hubs incl. central 10,000 sq. m. Kyiv hub that handles 60% of volumes

• 110 local sorting terminals

Hubs

Local terminals

Local terminals

Hubs

• 5 regional centers to coordinate logistics activities with 6-8 hubs each

• Optimized network of local terminals

• 4-5 hubs

• 30-40 x-docking depots

Q1-Q3 2017 Q4 2017 - 2018

We aim to streamline logistics operations to shift from setup with unreliable transit times to day-definite offering with several service levels

To Be

• One stop shop

• Marketplace agents services

• Clients savings accounts management

• Postman as a mobile manager

• Cashless economy: Any-Any, trade & internet acquiring

• Post-ID and address registry management

As Is

Service development and post office improvement

Postal sector is participant of EMMS program

IPC’s Environmental Measurement and Monitoring System (EMMS) program is a sector wide initiative acting to mitigate the impacts of global climate change via a collaborative approach to reduce carbon emissions.