For the first half of 2008 strong growth marks turnaround
The Half-Year Results of 2008 mark the turnaround of HayPost from an ailing soviet dinosaur into an increasingly competitive and innovative postal operator. HayPost enjoys an increasing interest from foreign and financial private sector to build public-private partnerships. In compliance with the Trust Management Program, HayPost has made significant progress in its transformation from a classical functional process oriented organization towards a market focused company.
Total Revenues
On a year-to-year basis total revenues increased by 16pct to AMD 2.6 bln ( USD 8.4 mln) for the first half year while operational expenditures grew by 8pct to AMD 1.7 bln ( USD 5.5 mln) , particularly impacted by the world petrol price hikes, leading to net revenues (operational result) of AMD 0.9 bln (USD 2.9 mln). From the net revenues AMD 0.6 bln (USD 1.9 mln) have been used for expenditures for post office modernization, new technology, product and organization development, transformation management and building human capital. Depreciation of fixed assets amounted to AMD 0.5 bln (USD 1.6 mln) and lead to net negative result of AMD 0.2 bln (USD 0.65 mln).
Postal Services
Revenues from Postal Services (Mail, Parcels, and International) grew by 45pct on a year to year basis, i.e. from AMD 525 mln to AMD 760 mln in the first 6 months of 2008. This was mainly achieved through new mail contracts with the private business sector. Nearly 4 million addressed mail items were processed in the first six months. This was less than 0.7 million prior to the Trust Management Program.
The quality of mail delivery in Yerevan is at a constant high level of more than 97pct of mail delivered within real Day+1. Prior to the Trust Management Program this quality level stood at 14pct.
The mail productivity ratio has developed from 0.7 mail items per employee per day in 2005 prior to the Trust Management Program to 12 mail items per employee per day as per 30 June 2008. More than 80pct of the mail concerns Yerevan city.
In accordance to the Trust management program, HayPost completed the establishment of its subsidiary “ HayPost International” abroad, as a step to launch its overseas postal network leading to higher efficiency, quality and volumes of international express, parcels, mail and transfers flows . The subsidiary will soon commence with internet based worldwide sales of HayPost’s philately products.
Financial services
HayPost is the nation’s leading provider of payments services. In the first 6 months of 2008 HayPost processed more than 14 million micro payments, about 3 times more than the entire banking sector. As such HayPost continues to fulfill an important social role as it is the only provider of such service to any citizen without discrimination in every corner of the country and without any specific charge to the retail users. Revenues from payment services rose in the first 6 months with 8pct on a year-to-year basis and are expected to continue contribute to HayPost’s economic performance.
HayPost has launched new fast international money transfers services, at high quality levels, and with intensive promotions. The results of the pilot are satisfactory, and providing the basis for a roll out to more than 120 post offices in the second half of 2008 and to expand at the same quality level of operation with other worldwide money transfer operators and financial institutions. HayPost has also commenced with the pilot sales of insurance products, as a step to make these services easily accessible to the population.
Financial Management
In 2008 HayPost has successfully re-integrated its general accountant function into the company, and subsequently it has been able resolve a series of legacy issues remaining from the past opaque ownership-cum-management structure. Consequently Financial management has been significantly reinforced and is able to provide much more timely MIS to management, and to control expenditure. A system of Cash Flow and Liquidity management has been introduced. Also Risk Management has been introduced for Liquidity, Currency Exchange, Operations, and Credit Risk, the set up of a Treasury System has been organized, improved functions for Accounts Payable and Accounts Receivable have been implemented. This applies also for the Planning, Budgeting and Control function, and several other tasks as defined in the Trust Management Program. Although it may take up to 1.5 years to fully develop the Financial Management up to international best practices, the company strongly benefits from the progress till date.
Retail and Real estate
HayPost has currently 9 completely renovated post offices, which operate at European standards. This number is expected to reach up to 50 by the year end. Clients and staff express high satisfaction with the entirely redesigned outlets.
Company structure: from a political government department to a market focused company
The company has now 4 main business units (Mail, Financial Services, Retail and Real estate) which each have their own Profit and Loss Accounts. A system of Internal Transfer Pricing is under development, and subsequently further refined methods for profitability assessment of products, clients and distribution channels are being developed.
In addition HayPost has also created an International Business unit.
HayPost has commenced with consolidating the 41 regional structures towards 11. Currently 5 districts in Shirak region are in the process of amalgamation into 1 Postal District, which will help towards achieving higher levels of efficiency.
The company has a Western styled Corporate Governance structure, with a Supervisory Board [representing the Shareholder or Trust Manager] and an Executive Board chaired by a CEO. This structure has been adopted and will become effective as per 1 September 2008.
Human Capital; priority # 1
Investing in human capital is one of the cornerstones of the Trust Management Agreement. HayPost has gone through structural transformation aimed at a lean, efficient and transparent organization. HayPost has introduced a Code of Conduct, detailed Job descriptions for all positions, and a Job performance system and an Internal Vacancy Procedure. All staff are currently being assessed and graded into a new salary system that becomes effective as of 1 September 2008. The new system offers a high degree of job security and income growth perspective.
As of that date also Employee Benefits will be introduced (e.g. mobile phone, insurances). As per 1 July all operations staff have been offered an intermediate improvement of the labor conditions. These measures include a labor contract for an indefinite term, abolishment of the archaic “production” bonus system through incorporation of the bonus into the base salary. All labor, social and organization measures enjoy the support of the Trade Unions and Workers’ Council.
HayPost has renovated its Training Center in Yerevan and opened this week a new Training Center in Gyumri. More than 250 staff has participated in courses offered by HayPost or through the Institutes and Universities with which HayPost has established cooperation.
Technology
In April 2008 HayPost signed a strategic partnership agreement with Microsoft, allowing HayPost to benefit from expertise, access to training and technology. A roadmap has been defined for improvement of the corporate ICT, to be implemented before the end of 2008.
About 300 out of 1300 client operator desks of HayPost are to some extent computerized. Newly renovated post offices have been equipped with industry standard front office ICT solutions. However the lack of a standard comprehensive front office solution presents a major bottle neck for HayPost to provide the required quality of information and data processing to its clients, and this remains a priority for HayPost management to address in the next half year.
International Relations
HayPost welcomed visits from delegations of PostEurope to Armenia to discuss the cooperation program. HayPost boosted its profile through the organization of an international RCC conference in Yerevan of postal operators from Russia, Finland, France, Ukraine, Uzbekistan, United Kingdom, Kyrgyzia, Kazakhstan, Latvia, Belarus, and representatives from the Universal Postal Union and other international organizations. HayPost was invited to deliver presentations on its change program to the World Mail & Express Conference in Budapest, the European Financial Marketing & Management Association, Eurogiro and the International Commission for Postal Financial Services. This has helped HayPost to strongly improve its international reputation and to establish relevant business contacts. It is also considered as highly beneficial for the Republic of Armenia, which through the Ministry of Transport aims to be re-elected as a member of the Council of Administration of the Universal Postal Union. Elections take place during the upcoming Universal Postal Congress in Geneva.
Cautionary Notes and Disclaimer
All financial data mentioned in this release are based on unaudited half-year financial statements prepared in accordance to Armenian (Tax) Accounting Standards. HayPost has commissioned the preparation of IAS/IFRS audited statements, which will be released later in August 2008 to attain the required transparency to our international business partners and investors.
Certain sections of this Release contain forward-looking statements that are based on the management’s expectations, estimates, projections and assumptions. Words such as “expects,” “anticipates,” “plans,” “believes,” “scheduled,” “estimates” and variations of these words and similar expressions are intended to identify forward-looking statements, which include but are not limited to projections of revenues, earnings, segment performance, cash flows, contract awards, exchange and interest rates, production, deliveries and backlog stability. Forward-looking statements are made pursuant to the safe harbor provisions of the Armenian law. These statements are not guarantees of future performance and involve certain risks and uncertainties that are difficult to predict. Therefore, actual future results and trends may differ materially from what is forecasted in forward-looking statements due to a variety of factors, including, without limitation:
• General Armenian and international political and economic conditions;
• Changing priorities in the Armenian government’s plans, budget, tariffs, taxes and policies ;
• Termination of government contracts due to unilateral government action;
• Differences in anticipated and actual program performance, including the ability to perform under long-term fixed-price contracts within estimated costs, and performance issues with key suppliers and subcontractors;
• Changing customer demand or preferences for cash payments and paper based communications, including the effects of economic conditions on the fuel usage of HayPost vehicles;
• Change of Ownership or General management ;
• Reliance on a few large customers for a significant portion of the company’s mail and payments processing flows; and
• The status or outcome of legal and/or regulatory proceedings.
All forward-looking statements speak only as of the date of this release or, in the case of any document incorporated by reference, the date of that document. All subsequent written and verbal forward-looking statements attributable to the company or any person acting on the company’s behalf are qualified by the cautionary statements in this section. The company does not undertake any obligation to update or publicly release any revisions to forward-looking statements to reflect events, circumstances or changes in expectations after the date of this report.
