Singapore Post Limited (S08) Earnings Call Transcript & Summary

Good morning, and welcome. We're glad to have you here with us today for this face-to-face briefing on the SingPost Group's results for the second half and full year ended 31st March 2022. This session is also webcast live and recorded. I'm Selena Chong from SingPost Relations. Allow me to introduce our management conducting the briefing today. Mr. Vincent Phang, our Group CEO; Mr. Vincent Yik, our Group CFO; and Ms. Michelle Lee Head of Corporate Services and Sustainability for the group. We have a set of presentation slides that management will bring us through, and we'll open the floor for questions after that. I'll now hand over the session to our group CEO.

Selena, and good morning, everybody. Okay. I'm glad to report a resilient operational performance in the year that has ended despite a challenging landscape, obviously. Financials have improved, with revenue up 18.6% and net profit significantly up against last year. All segments performed well compared to the previous year, with Logistics being the standout. Our recent Australian acquisition of the FMH group has also delivered well and is contributing to the group results. This gives us the basis and confidence to continue our efforts in the Group's transformation, one that's grounded on and directed by our corporate purpose and sustainability principles. We are committed to our Group's purpose that we launched earlier this year across the enterprise, making every delivery count for people and planet. Our transformation will extend us further into Logistics beyond our traditional business and our traditional markets. You'll see that we are gaining traction in our efforts, and we will maintain the discipline in our execution. I'd like to give everyone a quick overview of what went on in our operations, what we're working on, before I hand over to our group CFO, Vincent Yik, for the financial overview. We are positioning ourselves for growth by building on our markets as extending geographically and diversifying our revenues. We have set some key priorities to help us achieve business. The first is to simplify and focus on our core purpose, which will underpin all our business operations, guide our development. We will combine and streamline our operations for synergies, cost efficiency, operational improvements, better service quality and also to build a global network. We will optimize the management of our capital, where we will deploy towards transformational initiatives, and be disciplined to ensure execution. And of course, we will be guided by our commitment to our sustainability targets. All this drives us towards the transformation of the group to a leading logistics solutions provider in the Asia Pacific in order to create value. Over the last year, we have enhanced our sustainability approach, guided by material factors identified in consultation with stakeholders. We manage sustainability by 3 pillars: cherishing our planet, collaborative partnerships and on a culture of trust, balancing environmental, social and governance issues. With the first pillar on environmental aspects, we want to be responsible for the world we operate in. We've announced a net 0 carbon emissions commitment for Singapore operations by 2030 for Scopes 1 and 2, and for our global operations by 2050 for Scopes 1, 2 and 3. We will also adopt the recommendations of TCFD. This will enable us to gain visibility on opportunities and financial impacts of climate-related risk so that we can adapt and be more resilient against these risks. We have started on various decarbonization initiatives. For example, the electrification of our delivery fleet, solar panel installations, where we have them at the e-commerce logistics hub and we will continue to explore other sites. And as a last-mile delivery company, in our packaging, obviously, we have introduced a new smart pack made from recycled materials, which is recyclable as well. So ESG is integral to all that we do. Compensation on management and staff will also be tied to performance against sustainability targets, placing the balanced score card of management and staff. A bit on strategy. We have organized our strategic pillars by markets, Singapore, Australia and International. In Singapore, we will focus on establishing market leadership in e-commerce logistics, but there will be challenges as competition has certainly intensified. We are building a smart and green urban logistics ecosystem for our home market, one that enables us to offer a higher service level, better customer experience yet improve cost efficiency. In Australia, we are now building a network through our 2 significant operations, FMH and CouriersPlease to serve the large market there. As for international, we will re-engineer our assets to connect globally and make a difference in global cross-border e-commerce. Let me touch on some key trends and challenges in our space. Firstly, on e-commerce, expectations are that will continue to grow even post-pandemic. This has given us the opportunity to grow this part of our business given the structural change in our traditional business. Second, events in the last 2 years have caused severe disruptions to global supply chains and continue to present uncertainties. We expect continued volatility in freight and conveyance rates with varying projections of recovery time, and we are taking steps to make our network more resilient. Inflationary pressures have also increased. We expect inflation and wage pressures to continue for some time. We will focus on productivity and sustainability which, in the long term, is the only answer to this. SingPost has been around for 160 years, and we want to be here for another 160 years or more certainly. This guides us in our sustainability agenda. There's increased expectations from investors, customers, employees, regulators and our markets that we operate in. Specifically on e-commerce, and there was article in The Business Times this morning that kind of reflects that. Post-pandemic consumer spending will moderate in the short term, but the long-term trajectory remains positive as consumer spending habits have changed through the pandemic. There is a good opportunity for us to position the group well in order to capture this growth, and this is a growth trajectory that we see for a few years to come. I'll provide some updates on the markets that we have. So firstly, for Singapore, kind of a year-end review. Full year e-commerce logistics volumes grew 24% and now represent 40% of domestic revenue. This time last year, it was 32%. Our service levels continue to go up, with improvements in service quality over the year. We're delivering at a high delivery assurance level, as you can see from the slide. As the national delivery partner able to reach every household island-wide, we have supported COVID-19 efforts, distributing ART kits, smart goggles for [ measure health ], [ domestic conditions ], for example, amongst our other national initiatives. And we were able to do this because of our extensive network and infrastructure, which is really not easy to maintain, and we will have to make better use of our assets in the face of intense competition in the eCommerce Logistics space. Looking at eCommerce Logistics, we have seen strong uptick through the pandemic, as you can see from the chart over there, the last one on the right. But with the economy reopening, the pace has certainly slowed and we are starting to see some of that pull back. Then specifically for Q4, and you'll see the numbers over there, and let me give a bit of color around that. So there was certainly strong growth in the preceding quarters and the year prior, and we are coming off a very high base. Our focus now is to maintain service quality and to enhance customer experience amidst a highly competitive market. Our tracked letterbox product, which delivers a better customer experience, better productivity and margins, has also more than doubled over the last 3 years, and we intend to grow this even further. That kind of takes me to the next slide over here to explain what we are trying to do. We want to deliver higher-value tracked services that provide certainly a better experience for customers and improve on our productivity and efficiency. This is part of our transformation initiatives, a smart and environmentally-sustainable urban logistics ecosystem that allows us to achieve cost efficiency, competitive pricing and better service quality and experience for our customers, so we will continue to invest in this infrastructure space. The PostPal smart letterbox trial is still ongoing. This is a longer-term project with more to be done, and you will hear more of that in months to come, testing and reviewing and in discussions with authorities. We are replacing our delivery fleet with electric vehicles, and we will do that by 2026. Besides reducing carbon emissions, the new 3-wheeler scooters provide better operational efficiency and also lower maintenance costs. We are extending our parcel local network further, and we also have to report that we have added a network into condominiums through our parcel center acquisition in April this year. The SingPost mobile app has also been enhanced to partner this infrastructure efforts, and we have over 110,000 active users right now. On the second strategic pillar, which is Australia. It's a large logistics market with significant logistic expand. Our presence in this market over a few years were through CouriersPlease and Quantium Solutions. We now have an enlarged footprint with FMH as a subsidiary. Through the year, CouriersPlease handled more volume despite challenges from the pandemic and floods in Eastern Australia. FMH has performed well since our initial acquisition of the first 20% in December 2020, and we have since increased our stake to 51% in November '21. The consolidation of FMH as a subsidiary has contributed strongly to the Group's performance, giving us the basis to collaborate and create synergies in Australia. We will share more details on FMH performance in the result segment. But I would like to share a little bit of what it actually does. So it's a 4PL operator focused on the B2B logistics market, using a technology platform to provide visibility and choices to customers. This platform allows FMH to aggregate supply chain information to enable supply chain efficiency. The network is about 800 employees, 17 facilities across the country and over 150 partner carriers. Through strategic additions, FMH is now expanding its network and building our end-to-end capabilities in Australia. On the other hand, for us, CouriersPlease focuses on last-mile delivery in metro cities, and we have a wide network, with over 90% coverage of the properties. So you can see that our plan for the Australian market is to build scale, develop this whole thing end-to-end between B2B and B2C, with the aim of becoming a significant operator in the market and a major contributor for the group. On the international pillar, over the last 2 years, this has suddenly been a business that's massively disrupted by COVID. We have been adopting measures to counter the significant challenges faced by the business as a result. We have rationalized volumes, we are focused on cost management, margin management, and have been able to manage this business, fortunately at minimum margin display, with decline in volumes over the year. I know there's much interest in this area of the business given the recovery that we hear about in their capacity. I would like to say that recovery will take a bit of time. And while there may be increased flights following the easing of travel restrictions, these are largely narrow-body aircraft for now flying to tourist destinations of [indiscernible] working for us, and hence, less appropriate for the volumes that we ship in the IPPs. So it's going to take time before -- it takes some time before that recovery comes to bear. The freight forwarding business, on the other hand, has provided this rather natural hedge to the group during this period, and we have seen improved performance in the year as a result of higher sea freight rates, volumes arising from the disruptions of the supply chain. We remain focused on our international business. Our customers are global. We have an international reach with an access to 220 markets and have continued to serve them through the pandemic through this worst of times, but it has certainly been very challenging. We are taking the opportunity to re-engineer our network to build resilience and deliver consistent customer experience. So this will drive synergies and cost efficiencies with the assets that we have, the footprint that we have, and enable us to create competitive one-stop cross-border solutions for our customers. The international business has been our largest business, 1 of our 3 key pillars. As we reengineer the network, we will be in a strong position to ride the rising tide of economic and eCommerce growth and then post-pandemic. I come to the end of the section on strategic overview and update, and I'll now have our Group CFO, Vincent Yik, to take through the financials. Vincent was appointed in December last year. He has extensive experience in Australia and Singapore, and I'm glad to have him join us to drive our strategies going forward. So over to you, Vincent.

Good morning, everyone. Good to see everybody here in person again. So I'll just quickly run through the performance of the group. After that, I think we'll open the floor for questions. So SingPost has delivered improved set of results for this current financial year, so despite the very challenging operating environment as well as the absence of a very significant support from JSS and other government grants. Revenue rose 19%. Operating profit, also was 41%, leading to an increase of 35% in underlying net profit, up to SGD 81.3 million. So this growth was supported by the acquisition of a majority stake in FMH in November 2021, as well as higher freight folding and delivery volumes in our Logistics segment. This was partly offset by declines in the IPP and the domestic letter mail business as we expected, and as CEO has highlighted earlier. So also in the [indiscernible] business, we deconsolidated our [indiscernible] business, so our [indiscernible] business, following the divestment in December last year. So this was the trend in the second half, quite consistent with improved performance driven by the acquisition of the stake in FMH as well as logistic growth. Second half revenue increased 34% and underlying net profit up by 53%. So in this slide, you can see we are making progress in our transformation journey and moving our business beyond just Singapore. So Australia accounted for 20% of our group revenue, up from 18% last year with the acquisition of FMH and the continued growth of our CouriersPlease business. The international business comprising Quantium Solutions, Famous Holdings, now account for 29% of revenue compared to 33% last year. So this is mainly due to higher freight revenue. So going forward, we can see contributions from Australia and our international business continue to grow as you consolidate the FMH figures for the full year next year, and as we continue to reengineer our international business as part of our group strategy. So in Singapore, we will continue to be the market -- we continue to be the market leader. And while we expect revenue to be stable, Singapore's relative contribution to the group revenue is expected to reduce. So this slide shows the business segment. So business segment revenue and operating profit contributions are here. The revenue growth was driven by logistics, of course, includes FMH for the first time. So this helped to buffer the decline in Post and Parcel revenue, which was mainly due to the decline in volume in the IPP business. On operating profit, the improvement was driven by Logistics as well as the FMH acquisition, as well as significant cost savings from corporate overheads. So expenses under the Others segment fell 61% compared to last year, mainly due to cost control as well as some reversal costs. So I'll share a little bit more about each business segment in the next few slides. Post and Parcel segment delivered a rather resilient performance despite some challenges. So despite the drop in revenue, the segment recorded growth in operating profit, so up 23% for the second half and up 4% for the full year, after we exclude the benefit of the one-off job support in relief and other government grants in the previous year. So the decline in revenue was due to our IPP business, which saw a 22% drop in the second half and a 24% decline for the year as a significant result from the impact of air freight constraints. So we took active steps to try to manage the business. You need to cut costs and keep the business at minimum margin. So in the domestic business, revenue was stable. Decline in letter mail continues, while the eCommerce Logistics volume has helped offset the decline during the year. Now, this market is growing increasingly competitive. Moving on to Logistics. In Logistics, revenue rose 90% in the second half and 62% for the full year, mainly driven by strong international freight forwarding volume growth and the acquisition of FMH. So Famous Holdings continued to benefit from the higher sea freight volume and rates, effect of the global supply chain logistics disruptions, growing revenue by 75% in the second half and 70% in the full year. So the Australian business is comprised of CouriersPlease, and now, FMH. So CouriersPlease continue to go on the back of higher eCommerce adoption in Australia, but incurred higher costs due to COVID-19-related disruptions as well as floods across the country. So meanwhile revenue from other logistics businesses, such as Quantium Solutions, was lower. So Quantium Solutions's North Asia business was impacted by customer down trade and lockdown in China and Hong Kong, so these were partly offset by higher transportation and warehousing revenue from Quantium Solution Australia. So overall, Logistics operating profit grew to SGD 44.3 million, up from SGD 11.3 million the year before. So let me share a little bit about which is now a 51% owned subsidiary since November last year. So FMH contributed SGD 178 million to the group revenue in the period from December to March this year. So FMH continues to grow up, to do well. Consignment volume has grown through new business wins, and it has expanded its warehouse footprint to support future growth. So as a leading top tier player in Australia, FMH is looking to expand its network and strengthen its service offering to customers. So to this end, FMH has acquired several small to medium-sized logistic companies in the last 18 months, and we'll continue to look for opportunities to build network. So on the last business segment Property. Despite a rather challenging leasing market, occupancy in Singapore center, retail mall and our office remain high, 100% for the retail mall and almost 94% at the end of this year. So office occupancy has declined mainly due to the slowdown in leasing activity due to all the restrictions from COVID-19. So nevertheless, we see a pickup in leasing activity in the process of securing new office tenants. Similarly, there's a slight drop in the footfall compared to last year, it is as expected. But however, we also expect this to recover with the measures now being relaxed since April this year. So our self-storage revenue fell as the business was divested in December last year. So for the full year, revenue was stable as the divestment was offset by lower rental rebates given to the tenants. So correspondingly, operating profit was stable in the second half and grew 6% year-on-year. Moving up to some updates on capital management. So we have reduced our balance sheet financing to reduce cost and provide more headroom to support our transformation journey. So we redeem our SGD 250 million for purchased securities at March this year and issued new senior notes in March and purchased securities after that in April. So the new securities were the first such issuance in 2022, and we're structured to allow the securities to benefit from equity credit from the rating agencies. So in line with the government's priority to -- the group's parity to simplify and focus on our core business, the self-storage business divested, and proceeds will now redeployed into our transformation initiatives. So we'll continue to review our asset portfolio to assess the strategic fleet to fit our core business then to invest in strategic initiatives that will support our long-term growth. The group was in a net debt position as at 31st of March 2022, largely due to a timing difference between the redemption of the outstanding to purchase securities in March and the issue of new securities in April this year. So on a pro forma basis, the group returned to a net cash position during the new issuance. So the group's EBITDA to finance expense ratio improved due to higher EBITDA performance, which offset the higher finance expenses. Now turning to cash flow. Operating cash flow fell mainly due to working capital movements. Cash outflow from investing activities stood at SGD 53 million, mainly due to investment in FMH as well as property, plant and equipment and partly offset by proceeds from our GSC divestment. So cash outflow from financing activities increased SGD 256 million, and that's mainly due to the redemption of the securities mentioned earlier. Now let me move on to dividends. The group will continue to take a very prudent approach to managing cash flow and to conserve cash, taking into account our transformative initiatives. So for the financial year ended 31st of March 2022, the Board has proposed a final dividend of SGD 0.013 per ordinary share. So including the proposed final dividend, the total dividend for the financial year will be SGD 1.08. So this represents a payout ratio of about 50% of our underlying net profit, an increase from 40% last year. So cash dividend is subject to shareholders' approval at the upcoming AGM. Now, if I give a little bit of outlook. Geopolitical tensions, pandemic lockdown in many countries, or some countries, has caused disruption in the global supply chain logistics, so inflationary cost pressures have increased across a number of our markets. So in Singapore, eCommerce Logistic markets continue to be highly competitive. We will remain focused on our strategic initiatives to reopen -- to reposition ourselves for the long term while remaining prudent in managing cost and liquidity. We continue to review our assets to assess strategic fit of our core business, to invest in strategic initiatives that will support our long-term growth. Yes, I come to the end of my presentation. I think we'll open the floor for questions.

[Operator Instructions] May we have the first question?

This is Rachael from UBS. I have a question on your dividend policy. Could you remind us what your dividend policy is? And as regards to how you intend to balance it vis-a-vis your CapEx spending, could you comment on that as well?

So the group dividend policy, according to the annual report, is pay out between 60% to 80% of underlying net profit for the year. So we have looked at it and had an extensive discussion around it. We are coming off a fairly -- there's still quite a bit of uncertainty across the operating market environment and in being prudent, as well as rewarding our shareholders. So increase our dividend pay out vis-a-vis last year, but just a little bit under the policy for this year, also taking to account the capital requirements as you continue to grow the business.

Just to follow on that. So this year, you paid 50% against your policy of 60% to 80%. So how should we consider your dividend policy going forward? Will you look to change it or we just ignore it?

For the question again, right. I'd like to think that we are going through a transition period where, really, our transformation plans have yielded some traction and some benefit, as you can -- we talked about it for a number of years what this transformation really is about. And hopefully, through the results this time around, you can see that this is gaining traction. So there is growth, certainly, in areas that are non-traditional to our business. All this require capital expense, they require investment in resources, in capital, especially with some of the work being done, as you can see, overseas. So it's -- as Vincent mentioned, we are in a period of managing the -- we discipline our capital requirements across all our markets, taking stock of all the growth opportunities that we have. We value our commitment that we want to make to this. And as we discussed extensively with the Board, yes, we do have a policy band of 60% to 80%, and we are coming off a recovery. But I'd also like to -- we remain cautiously optimistic. We were coming off a pretty bad patch, quite low. So we are seeking the recovery, obviously, from a financial standpoint, but we're also looking to make sure that we share in the rewards to all our shareholders. So it's a balance between the 2, just balancing what we need to do in the future. I can't comment on the policy for now. I think more work out to discuss what is it in store for us, the things that we are committed to doing, investments that are forthcoming, and the ROI from those investments. So hopefully, that kind of gives some color around our thinking about the dividend.

Han Low from OCBC Investment Research here. Just a couple of questions. I mean, following up from the questions on the capital management side of things. So just wondering, I mean, given that you're in this transformative cycle, what kind of acquisitions will you still be interested in looking at? And then my follow-up question on that would be like, given that you have really invested [indiscernible] into FMH and so on, how much more CapEx will look to enhance and further this kind of roll out?

Okay. So in terms of acquisitions, we have just made a sizable one in FMH, as we all talked about. And that's our primary focus and commitment too, so we want to make sure that we really bid down this acquisition well. So far, the traction is there. I think we have been very prudent in the way we manage it, going from the initial 20% into a step up 51%. We do have continued options to take that to full ownership, so we're working on managing that process. At the same time, [ FMH ] itself is a company that we -- together with CouriersPlease, our business in Australia, and you see that the total combined revenue of those 2 businesses isn't small in the country of Australia, in the market of Australia. So as we put that together, we'll also be looking at additional opportunities where we can roll up some acquisitions. I won't comment on much, it all depends on opportunities that come. But as you can see from historical advantage, that has had made some small acquisitions as well in terms of small to medium-sized ones. And all to roll up or to make sure that we can provide more synergies across the network that we build. So we probably see a bit of strategy developing on that front, that we try to organize on Australian market even more successfully for us. So we remain very focused on that platform.

Yes. This is John from [indiscernible]. Can I check, is there any plan on the Singapore center? Because it's a pretty stable mall now. Occupancy has been quite stable, and it looks like it's a really pretty mature. And recently, I saw that you have signed some agreement between the 3 malls around here, right? [indiscernible] Regional Center initiative. So I mean, is there any plan to unlock value of the property? Because holding it to an investment holding company may not be as efficient as holding it through a REIT, which can fully unlock the value of the property. Yes.

John. I know that there's a lot of interest around the SingPost Center. Maybe let me give a bit of clarity what this building is. It also is our current mail operation [management], so there's a large industrial part of it that we're actually basically sitting on right now. So that remains our central reality for the original business. And of course, the more public side of it is the commercial and still, mall that is more accessible to the public. So yes, that's considering interest in what we can do here. I would say that we are -- first of all, coming through this COVID cycle where rentals have been a bit depressed and there are some stress in the real estate part of our business, but I think we weathered it pretty well. We are also taking stock of the infrastructure plan in the Singapore business. We have intention to invest further into the infrastructure side. We're re-architecting our network in Singapore. There are plans for us to consider whether the mail operations [ management ] continues to be here in SingPost Center or not, and we do think that there are some opportunities for us to reconsider this. So as part of that whole, we are detecting that there is that possibility that SingPost Center might be an asset that we could redevelop. So I won't rule out all the possibilities we have here, I think it's certainly something we got to look in. But it's also tied to the operational plan that we have. We should -- we will give more color more update in the next few quarters as the COVID situation stabilizes and we move more forward with the plans for our Singapore network. So that maybe gives you a bit of color to it, just a possibility. But in terms of the -- we're not oblivious to the fact as well that this part of town is becoming very vibrant, right? So as you make your way to SingPost Center, you might have seen the developments around the PLQ area, the Paya Lebar Square and all that. So this part is very vibrant. There are 2 MRT lines that connect to Paya Lebar. So there's significant interest in terms of what we can develop out of this from a regional standpoint. And that, I guess, is the backdrop to what we should be starting to think about in terms of as we re-architect our network, what opportunities can we play into, so more on that in time to come.

[indiscernible] from UP here. So I have a question about the Post and Parcel. Because I'm looking at the second half, and I see the operating profit is actually higher on a half-on-half basis. So like the first half was SGD 11 million, but this half is SGD 13.5 million. So I was just thinking what has driven the growth in operating profit? Just assuming that the IPP is about the same operating profit. So is it due to like the e-commerce -- is it due to e-commerce overtaking the less and the decline in operating profit in domestic new? Or -- just disclose what is driving the growth in operating profit?

Yes. Indeed, eCommerce has had a huge spike through the last few quarters, barring the Q4 that just -- and I would maybe like to give a bit of color around it. So as I mentioned in my presentation, there's been a 5 or 6 quarters of very strong growth as a result of what's happened. Online shopping, e-commerce really penetrating a little bit more into the Singapore, retail heavy. So we've seen that, so that growth has come along. I guess there's a replacement effect on the letter mail, which continues to grow, by the way. It's up, last year, we closed the year, 18% negative for letter mail. So that part of -- I guess from now on, that's just life. So for us, the revenue replacement from eCommerce is we shall be riding on the infrastructure advantage that we have in the post operations, and that has certainly yielded a very strong advantage for us in terms of making eCommerce duties. We've also been, I guess, fortunate in a sense. We maintain our service levels at a pretty high level. In fact, we're very proud of the fact that through the worst of times, our teams have continued to deliver to a really high standard. We monitor this on a daily basis. It's generally 98%, 99%. In fact, I think most of the time, it was 99% even through the peak season in November and December. I think that is an important aspect of what we do because not only is that the network fact and the infrastructure leverage that we have on using postal for these deliveries, it's also a reason for confidence because that postal network is actually very resilient and very strong. And we can deliver at the kind of high assurance rate. That is the reason why we could deliver for the country. So there were, in the second half, we all receive ART basket. We did that delivery a couple of times over. And all these national initiatives came about, I suppose, on the back of the assurance that we can give the country in terms of the service levels that we can provide. So we're proud of that. I think the team did very well. That explains some, I suppose, fortunate one-offs that came into the business. Now, offering a bit more outlook going to the future because maybe that's where you're leading to the question. Q4, we did see a pullback. There is some slowing down or maybe even take Singapore, maybe all of us have bought a little less eCommerce items. Now that the malls are reopen, so we are out shopping a little bit more. So there's a bit of an impact, we see that, and certainly with a pullback. And on a year-on-year perspective, it certainly looks like there is a pull back. Long-term wise, I think our trajectory is going to be strong. The consumer habits have probably all not permanently changed, so we can count on that trajectory going forward. But in the short term, there will be some readjustments. And I just have to be a bit more cautious about in the sense that we did come up a very strong growth, a very high number of deliveries in second half, especially in the Q2 and Q3 quarters. Q4 showed that pull back, there may be some softness as a result of these market behaviors. So maybe that gives you a bit of color around what's to come.

Sir, so the second question is about IPP. So from the slides, you can see that the cost is still quite high compared to [indiscernible]. So I'm just wondering what is Singapore's biggest market for IPP? I'm assuming it's China. But China now is going through like, how do I put it nicely, a 0 COVID policy. So assuming that is this prolonged and freight rates will go down, so I'm assuming it would take a while before the IPP will recover. And then -- so other markets doing that, it's like, maybe the U.S. or Australia, so maybe that could help offset some of the China like decline in China -- sorry, basically the market in China doing badly. So yes. Maybe you could share some color on that.

So let me give maybe a bit more understanding to everybody about the international business, IPP business. As an e-commerce industry, the majority of items did globally, or rather 70%, 60% to 70% of all e-commerce items on the [indiscernible] that we have, that the ship is actually global. I mean, it moves cross-border, and the balance is obviously in-country purchases and coming out originating within the country sell. So about maybe 2/3 are, I mean, across border. And the biggest market that does all the exports is China. So the impact on China is because it's an outbound country, it's where the origin of all our e-commerce shipments. And certainly, through most of COVID, I don't see relatively unscathed. But I think there are some impact now to the supply chain originating China, and we are seeing a bit of the impact. So yes, there will be, there will be cost pressures as a result of this. There will be service level issues as well and the impact to revenues on service levels is that people just cancel the order, they buy elsewhere. They switch to other alternative purchasing. So we have to watch the impact of continued supply chain disruptions originating in China. The general ad capacity recovery for the region, and especially for Singapore, we are very dependent on Singapore because most of our shipments actually transit Singapore and that's always been a traditional strength, because Changi Airport offers that global connectivity to the rest of the world. So imagine our supply chain is coming in from China, we redispatching it to under over 200 countries in the world overnight from Changi Airport. That was a great advantage. Never the cheapest, but always the most effective. And through COVID, that evaporated because we couldn't get any flight down. And in line to revise it, the global markets that we serve are Europe, North America, everywhere that buys e-commerce. So the recovery in the air capacity market, which is led by tourists destinations actually helped us. So we do need to see more sustained growth and opening of all these lanes to the major markets that we have and get the rates down to a point that our margin can start to make sense again. So we've been very cautious about that impact. So that, maybe from this point onwards, may have some gradual open. We're also very cautious about the other issues that's happening around the world. So while the impact isn't to any trade lanes in particular, it's just that general inflationary pressures are higher. So fuel is going up, division fuel rates are going up, which means at some point in time, the airlines are going to pass it to us, in fact, they have ready. And also, generally, just which patient issues with a small country ours. As we reopened, there's also very significant pressure on the -- on labor. People have choices. And everybody is eager to open up, and everybody needs manpower. So those are all issues that we have to contend with in the short term. Hopefully, that gives a bit of color around the international business. That will -- we see continued headwinds. It's not like it's not saving from this point, but it's not so straightforward that COVID kind of abating and we can see the recovery. There are some other macroeconomic factors, geopolitical issues that we have to be mindful of.

I can just have one more follow-up. So the past 2 years ago, between COVID and the whole supply chain issues. So I was just thinking if the exporters in China, so obviously, they can't come to the Changi Airport. So I'm pretty sure they found a way, a cheaper way to deliver their goods. So let's go in the next few quarters. So when you just remove Singapore from the -- so is that going from China, Singapore, to U.S.? Maybe just could they go straight to U.S.? I'm pretty sure they might have found a way to little cheaper. So moving forward, my question is, is there like a secular trend where Singapore, like SingPost or Singapore Changi Airport is being removed from the equation? I think that is my last question.

Yes. Great question. I think it's a question that will confront us as a country, so it's not necessarily just in both alone. Think we're all concerned about the Changi's connectedness to the rest of the world or relevance or rest of the world even as we come out of this. Whether trade lanes, logistics networks have been readjusted through the pandemic. I think there's interest led by the government in opening up Changi as soon as possible because we all understand this impact that can -- that can be very significant for us. For a reputation that we've built, the kind of effectiveness that we've had, and yet it's going to cold storage for the last 2 years. So opening that up is a national effort, I suppose. So I guess I can say we're well plugged into that effort in reopening, playing a small role in that. There are certainly lanes that have been re-routed through COVID. People have to make a living, right, so they do what they need to do. So people fly direct, bypass Singapore and those more colorful language you can use. I guess the whole point is how we optimize this to provide more resilience without depending on this. Otherwise, a trustworthy hub called Singapore. So we need to reclaim the reputation, I suppose. So that's one of the reasons why due to the COVID issues, our IPP business, we've been very careful, very deliberate about managing what we can do best to not overpromise. And it's a lot more complicated than just presenting on a set of, like, what is the revenue, how come it didn't make much margin on it, but it's very careful margin management to continue to uphold a certain reputation where we can do. And to put it very bluntly, without going to a loss situation, right? So we have to pick the lanes. We've got to pick which customers you can serve, and where we can go to without actually running a negative business. But at the same time, giving us enough base load to make a comeback when this reopened and gives us an opportunity. So I won't say it's easy. We will be looking at -- certainly re-engineering our network so that it provides a bit more resilience. We also need to be part of narrative. Well, maybe as a last comment, I'd say I have a hope there's a lot decision -- professional in this space for quite a number of years. I think that logistics is all about hub and spoke, right? It's not just so plainly, I want to go from point B, I just get on a flight and go to point B. So our cost effectiveness is about -- co-loading opportunities is about, and spoke, picking where it makes more sense on a volume standpoint, lane standpoint. So that will always come. And as long as we present ourselves as a country, a hub, a network that is -- that offers that opportunity for others, being integrated and connected to 200 other countries in the world pretty much overnight, I'm optimistic of that being in reestablished.

We have time for maybe the last two questions. Yes.