Singapore Post Limited (S08) Earnings Call Transcript & Summary

Morning. Thank you for joining us. Good to see everybody again. And I suppose we met quite recently after the strategic review announcement and so really appreciate your time. To me this is really a continuation of that discussion we had aspect. So it's a narrative of our continued transformation that we see and the near-term results, which is higher in H2 and the full year, give you some color on how the transformation program continues. So this year was an important point in our transformation into a global logistics enterprise as we see. And this allows us to recalibrate for our next phase of growth. At the start of the year, the initiatives to review as you are aware and we said that we will be exploring transformative opportunities in Australia. We're building our international business coming out of pandemic and reviewing the viability of the Singapore postal the Singapore business in general, which has a large post. And in that regard, I believe we have delivered on all fronts. Our transformation efforts are yielding results in these core businesses, and that really contributed to the performance for the year. I also have mentioed, globally, there continue to be tons of challenges against the global trade slowdown, post-pandemic dynamic adjustments in the logistics sector. The group's net profit was significantly higher in the second half and as a result for the full year. In fact, doubling for the year when you look at our numbers there. And clearly, that benefited from exceptional gain from the higher valuation of the SingPost Center during the year. But more pleasingly, I suppose, is that underlying net profit excludes these exceptional gains was up 28% at $41.5 million. I will let Vincent speak on the set of financial results long time. So allow me talk to some of the businesses. As we said, over the years, we successfully executed and delivered on quite a few of our strategic initiatives, and these are the several milestones that I would like to highlight. First, on the strategic review, which we announced in March that has led the path forward to create, enhance and unlock shareholder value. It is our opinion that the share price to fully reflect intrinsic value of the group, which we have said previously, and we will continue to execute the strategies to unlock instead. Here, I read the call the transmission in our Australia business. The acquisition of Express is a real game changer. It has lifted our Australia business to the top 5 largest integrated logistics providers in this large market, and we are now trying for the next phase of growth. The other significant development was in the domestic business. We also review that we took critical to resolve this drag of the group. So it's a structural issue as we said, require a structural solution. And that will entail both near- and longer-term actions. Since the announcement of our full year loss for the postal business 1 year ago, we work closely and quickly with the regulator and obtain postage adjustment in Panama. It was a necessary, but substantial adjustment, which has since stabilized our Singapore, especially on the store front. I'm pleased to report that Singapore business has performed well, driven by significant eCommerce volume growth on top of the postage adjustment in the second half. Very pleased with the total eCommerce volumes that has grown 11% year-on-year and associate accelerated in the second half, as you can see from the chart, but Q4 was a 32% jump as we acquire new customers and increase share of volume of existing customers. With eCommerce-related revenue share of the business having grown to a significant size relative to let you can see from that pie chat over there at about 41% against 47%, which means we are close to 1:1. Group eCommerce has presented tangible opportunity for the replacement of the letter mail revenue in the P&L So here, we had the benefit of the postage adjustment, which provided a revenue uplift to a letter mail, offsetting the continued volume decline of about 6%. We are now adapting and optimizing the infrastructure as the delivery profile shifts and we focus on eCommerce opportunities. So then to the growth, we are expanding our eCommerce touch points. We now include at major transportation points as well as. I said this before, the physical post offices have been incurring losses even the high operating costs and declining demand for postal services. As announced previously, we continue to review and look to optimize the provision of postal services with the regulator while maintaining the high service standards. As part of the work on network optimization, a key strategic transformation of our business over the next few years. We are reviewing the operations and infrastructure, looking to networks for posting offers, delivery bases, processing facilities for optimization opportunities. So this will continue through the next few years. Allow me to speak about Australia now. Both the SME and core base businesses performed well in the year, meets quite a challenging market, as you're aware in Australia. Economic activity has slowed down with a high interest rate and inflationary environment, while operating costs have certainly increased. In the Middle Sea space, please report at CouriersPlease certainly kind of up the industry trend with volume increasing about 13% on year and as a challenger brand in the market, CouriersPlease has grown volumes with new customer acquisitions and a higher share of existing customer bonds. On the B2B front, asset mix was resilient. The business continued to do well with onboarding from a strong business pipeline, which remains 4 months going into the new year. The 3PLs space encountered a weaker market with higher operating costs, other challenges faced by other operators. During the year, is became a fully owned subsidiary following the acquisition of the remaining 12% stakes. So as you are aware, we are now 100% owner of. And not long after that, we made a pivotal acquisition of Expense, which significantly elevated the size and scale our entire Australian operation. I just may not hear that in our results, you will see actually it impacts a 1-month contribution of order Express in the month of March. With the growth and expansion of the Australia business over the last 3 years, both organically and inorganically, the focus is now centered on the integration and optimization of the interest to unlock new opportunity. Let me give some other opportunities. There is a substantial amount of opportunities available in the near and from our operations and network then. With an illustration procurement, we are looking at key spend areas such as vehicle fuel, tires, waste management of your social operations. We were freed out about 610 trailers in the combined business, the size and scale of our operations present potential for significant savings. On the horizon, there are opportunities in the group's operations network and facilities which will be evaluating as we are phase of growth. As highlighted in the strategic review, we are set to explore partnerships and investments in the Australia business to further the scale as well as potential future there will be options to maximize shareholder date. Moving on to the international business. We made good progress in enhancing our market presence, innovating customers and driving operational efficiency. In the last 12 months, we have service series of strategic partnerships across various markets, including Indonesia, China, Vietnam and the U.K. The study on the eCommerce transshipment hub in Singapore is still ongoing. Such collaborations are critical in expanding the global footprint of our light model, enhanced service offerings and growing cross-border volumes. As said previously, we have been developing and rolling out new hybrid postal/commercial solutions aided for links. Such options that capable our commercial and the universal service gives us flexibility in meeting evolving customer. Additionally, we introduced our cross-border digital 4PL platform, which adds that proposition, enhancing connectivity service as well as customer experience. With these initiatives, we continue to successfully reshape our revenue mix. You can see that on the right. Commercial revenues more than doubling to 35%. And as you remember, this business was very postal supply chain. This has now evolved significantly. This allows us to enhance our customer experience. As part of the reengineering of the business for operational and cost increase actions, our operations and networks were restructured the consolidation of operations and introduction of automation for sorting. So yielding activities in warehousing, various overseas operations were also phased. Letter mail management is a central component of cost is achieved cross-border business, obviously. And this was further strengthened to ensure a rigorous approach to manage our conveyance costs. Conveyance costs are at up still about 30% higher than the downward decline continues. And this year, we saw a 13% decline in the overhead conveyance costs of the year. All these efforts have created to the better profitability of the international business despite of the market weakness. That's for the business. I would also like to touch on about the sustainability highlights for the year. We are progressing well towards the net zero targets that we have set. We haven't focused about this obviously on that working to low conveyance to support our customers' reduction of the Scope 3 emissions as small companies deal up for their net zero targets. We're quite pleased that we have done a life cycle assessment of our services in Singapore and our ability to divert letter box or to put points of pickup, drop-out as well as the Eagle electrification. All these bring delivery options to the market. They are far more travel efficient than deliveries that our competitors. Beyond cover management, we continually adopt innovation for the business. We are used to help improve operational efficiency or safety and customer experience. Cyber security is also a key focus. And on this front, we are pleased to announce we have a cyber trust market initiatives and this was made possible with strategic answers with technology partners to logistics solutions with our generative AI. Also I'll talk a bit of our employees, which is the important in the business. So I'm happy that we are recognized as A Great Place to Work in our various markets this year through our engagement with Great Place to Work. It is a fundamental corporate value in SingPost. And I'm glad to share that we continue to make improvements on our safety books and lost time injury frequency rates have improved year-on-year profit. Now finally, on the outlook. But because of our markets remain challenging, with the global issue, economic growth is slow, continues to be inflationary pressures and to that geopolitical tensions and always have -- we often called up to present is to our businesses. Notwithstanding this, we are focused on executing the strategies that were laid out in the strategic review and once again, I'd like to highlight what those are the reorganization and capital management focus at the corporate level, the strategic plus at the individual businesses. And I will encourage you to view our performance as we wrap up this financial year to the lense from this point as you view us to the individual components of the strategies. We are making headway on several fronts of the businesses, as I have updated. Over the next 3 years, we will execute to deliver this blueprint as we transform the group into a global fixed enterprise and create long-term value for our shareholders. Hopefully, I've given you some color of what the business is like. And now I'll hand over to Vincent to present the financial results.

Thank you. Good morning, everyone. Good to see you all again. I suppose I can afford to be a little more positive before I jump into the financials, let me highlight a few key points first. I think the business that we have taken over the last year or so has been nothing to show some fruits. I think we showed some results with signs of I suppose moving in the right direction not quite there yet, but I think moving the right direction. So I think group did, I think achieve a reasonably good set of results, even a very challenging business environment of slow economic growth, inflationary pressures and a lot of geopolitical tensions drop. So not only the region that as well. . So our core business in Singapore, Australia and international improvement, you can see that, but for our other businesses, particularly our freight forwarding business, the post-pandemic contraction in the industry has some impact on our Famous Holdings business. So nevertheless, I think we did achieve good earnings growth and a higher final dividend has been focused from the group. So moving to the P&L specifically, I would like to call out a few items to highlight to the Revenue we show for the full year. So this is largely due to the pullback in freight forwarding and the adverse currency. So operating expenses were down in tandem. So particularly in our volume-related expenses, which declined with lower average cost and freight rate and volume. So in the second half, despite all these factors, the group did pretty well, recording an operating profit growth of 3.3%, notwithstanding the pullback those 2 areas. So the -- you have to call out . So let's see due to defend value gain on SingPost highlighted a year earlier. We've been booked a gain of about 38.1 million this year. So bringing the valuation of SingPost to enter to about just over 1.1. So then moving on to the second performance. Now over given with some limited performance given our expansion and our overseas to the overseas market. So over 80% of revenue now generated internationally. So particularly, Sing dollar has appreciated 6% to 7% against the Aussie dollar and the Chinese yuan. So the Australian business is now our largest business segment to the group. So you expect the dollar will have some impact. So for the full year, the estimated currency impact on revenue is about $73 million. And on operating profit would have been $40 million higher in the constant currency. So on the chart here, you can see how significant the contraction in freight forwarding has been. So as evidenced, volume has come off substantially post pandemic, especially with the disruption in the Red Sea. So you can see the Famous Holdings revenue and our operating profit coming down 50%, 60%, respectively. So moving to logistics, which now include our core business in Australia. We have recorded a lower revenue and profit really through our freight forwarding decline. So the business has been resilient. Revenue was flat largely due to currency translation impact. The business and the B2C customer delivery business continues to do well with new customers with higher volume. So then we have touched earlier. So we have some in space by the across -- there's consistent across the with high operating costs, lower fuel surcharges and margin compression throughout the industry. So this result for the Australian business include the 1 month consolidation of Product Express. So we see contribution has come out significantly from over $400 million to about $262 million this year, resulting in the Logistics segment slower revenue profit. Solutions has been reengineered and it's now part of the new international business segment, driving operational efficiency, the loan yielding warehousing contracts has now all been phased out, mostly been phased out. So this has led to an improvement in this performance as well. So moving on to Post and Parcel segment. So Post and Parcel segment around from the low of last year to post an operating profit of $7.5 million here and largely due to improve in the international business. So then the integration with our patent solution has created a pretty good operational synergy and also roll out new commercial cost solutions. . With the moderation in air conveyance costs, type cost management, especially in Mihalos, the international business continued to improve profitability. So this is the start the pullback and the decline in cross-border volumes in what they've seen globally. So the domestic business did grow eCommerce business that has touched on. This is largely off the base volume growth in the sector. So moving on to financial position. So the group financial position and balance sheet remains healthy and strong. So cash position is steady and just under $500 million. So borrowings were higher this time around, largely due to the acquisition of Enel Express as well as the upstate in -- So on the strategy review announcement. So capital management is a key focus. So we continue to look at opportunities to recycle some of our apps assets and businesses reduced that intention the type of investment in the future and then potentially to return some back to shareholders as well. So lastly, with regards to the proposed dividend, the Board has recommended a final dividend of $0.056 per share. So together, the interim dividend of $0.056, this is a total dividend of $0.074 per share, so an increase of 28% over last year's -- So that's the end of our presentation. Thank you. I think...

[indiscernible]

For the, how much do you contribute decline and also the operating profit?

Off-line operating dollar of the 5 million, about $12.5 million.

Many consistent in terms of the operating profit cases, is there any?

There is seasonality in months, but it's not as -- because it is mostly B2B, so it's not as what variance as the retail business. So it's fairly consistent but very seasonality. I will also have to say that generally, in the last quarter, usually it is a little bit slow as well.

Just on the Australian business, particularly, I think you mentioned a lot of the macro conditions. So could you elaborate a bit on how the macro conditions are you established in business?

Yes. So there are 2 parts to our Australia business. There is clearly a very large 4PL business. And also, we are integrating and synergizing our 3PL businesses. So what I expect for example 4pl business, which grow coupled with the 3 assets that we have in the Australian business. So that's the 2 main parts. And of course, that's also the facility CouriersPlease partner delivery business of more B2C business. So how do the macro factors like these 3 components from a cost base standpoint, cost has been increasing on the inflationary pressures, the event that RBA might have then we say maybe one more hike. So hopefully, that won't come. But there's all these costs that has put through the business over the last couple of years, and it's starting to hurt the industry and launch. There have been patchy success in the industry as a whole in passing on some of our cost to the customers, which means your margins are being compressed. So in the 3PL space, there is the effect of costs being dipping into some of the margins. Through COVID, there was also a lot of investment by the industry in general, but generally industry, some players have doubled down on investment CapEx, maybe probably carried way. And one of the additional costs is now coming to Rustan. So if volumes are under there's a lot of excess capacity. It means the market has also not been able to price -- generally to price it as aggressively as day 1. So that will certainly provide some downward pressure on our 3PL businesses, and we are seeing, but not no mistake, our 3PL business is facing significant headwind and on a year-to-year basis has been challenged. Over half of our business is our 4PL. And our 4PL is less exposed to all these cost pressures because we are really an orchestra of supply chains, and we have the ability to pass on the cost a lot more effectively to our customers in a way these days, all these cost pressures around -- and the vendor base is pricing it lower, partly in some of the who we're doing, we are less most to the immediate pressures on the cost over. In fact, we are seeing the opportunity in our 4PL business to and have that as an advantage, you will see that our 4PL business has actually grown and actually contributed a single. So the balance between the 4PL and 3Pl business is overall base growth as a result. So we are fortunate to have that construct, and we are very steadfast, very disciplined in making sure that we do not grow this business only on the 3PL front. We want to make sure there's a very healthy balance of the asset-light model that so that wouldn't change things. The third business is the B2C business. One is a matter of the retail habit. So retail is down in Australia. We are, at this moment, as I mentioned earlier, a challenger brand, which means we aim to onboard market share. So -- and that business has continued to do well through the year. It has improved. It has grown bottom line wise, and we have gotten more market share as a result. So these are the -- so in a way, the business in Australia is relatively diversified. It's not a single sector focus. It is multi but there are many different aspects in that allow us to have a more balanced view of in general as a result of this business stuff that we have, it has been more than stable. It has improved, and we're very happy with the results so far.

If I can, just a couple of quick follow-up. You've mentioned double down investment CapEx. Maybe can you elaborate at which quarter -- of our competitors?

Warehouses may have bought more trucks they have more capacity. .

And again, just another few follow-ups. Can you say 4PL does it mean that you -- because everyone has built so much capacity as a 4PL, either you can see about excess capacity is one way to understand?

The way of 4PL works is the bigger the vendor base very fast, right? Because if there's less or better base than the talent between the customers and vendors, you have -- So I guess we've -- in a way, you can almost imagine, we have excess capacity. It could also be a benefit. So as long as we get to be smart about how we organize the vendor base and the solutions to our customers. And so far, we've been able to a benefit from that. Hopefully, that makes sense. elaborate a little bit for the

past year. How is your performance for Australia on a constant currency basis, if we exclude order Express because I think in Sing dollar looks sluggish.

So in terms of revenue, the 3PL business probably role at a little bit maybe 15% in terms of 10% in terms of revenue. In terms of revenue for the business has been relatively flat year-on-year. So it is kind of just down a little bit or a little bit point, terms. In terms of operating profit, the 4Pl business did do better, it's up by 12%, 13% and the 3PL business down just about 15%. So there's quite lot of reflect in terms of operating profit numbers.

you mean 3PL dollar effect?

Yes. So the 4PL operating profit was able to offset the decline in the 3PL business. So as a group on dollar is at least operating profit came in relatively slightly year-on-year. Revenue dipped a little bit pullback about 5%, 10% just on the largest number on the constant currency basis.

Can you share more about how you expect the business profitability to perform this year? And in terms of your -- given your targets on synergies.

So I think from the business perspective, there is a huge amount of opportunities that we can get. In terms of -- let's talk about the simple one, say, in terms of 3PL business. It is obviously, in a very competitive market, we have a lot of capacity in the market. The good thing about our 3PL business is probably two things. We are not in terms of how much it is invested. So our capacity still remains relatively healthy. We are primarily also focused on the B2B space. So there is a lot more consistency in terms of the revenue that we generate. So that is good. The first thing that is good about this sector for and very specialized lanes. So we are focused on very specific areas of the 3PL market. So we don't compete in the general market in a sense. So that gives us quite a good pace to work with. Let me talk about 4PL. 4PL business continues to be the driver and the opportunity for us. We continue to see a lot of that we are, by far, the largest. The margins is very consistent throughout both pre and post COVID. So we continue to see a good uplift in that space. As we get more vendors in month that just continues to be so we see a lot of uplift in terms of business. Then in terms of synergies, we now have 9 different companies and on Express being one of the large unit. 3PL business not only in our portfolio, but also in the action. So we do see quite a fair bit of synergistic upstart across the grid. So it's synergies in terms of we need about office. So if not at or even 4 different office consolidated that as the synergy there. Doesn't have synergies in terms of revenue in front. One is than customers, right? Do you have customers that different from customers engage in a different sort of business now, we put them together and it has a customer base. So one is revenue uplift. Two is that you are able now to monetize a customer money so a customer that was on only 4PL, they used to go 3PL, and now we can then offer them across the entire value chain. So that's also first 2 investment assets that are is for a single use. So we do see a lot of revenue upside in terms of synergy as well. So if you bring all of this together, I think certainly fairly optimistic is if we go energy to do that properly, which is a key objective this year, I think there is quite a bit of upside in terms of synergies in Australia business.

Time line vision, do you think go is the lowest hanging for then see smaller.

I think we are doing now the outlook front. So that there's specific growth that drives the value, I believe, of the revenue side. And there's a that is driving operational integration across the group, so that we can bring in value synergies from consolidation of the businesses. I think we are getting both -- but in terms of quick wins, I think the revenue upside is probably the first, you can connect the comes up where they bring the value to the.

Just to add to what Vincent said there is an indication project that has been commenced. So we've gotten very quickly to these things. We that project has already started by about the end of this quarter, I think we should have a good increase of what potential we can get and I just add to Vincent said. I don't think the potential is is immaterial. It's going to be a relatively sizable material synergy that we can try to target.

able to quantify?

Personally, something that we will have certain clarity by the end of the quarter, as I said.

So the Post and Parcel for the second half solution the breakdown of the operating profit in terms of like from dramatic exceptions on the spot production [Technical Difficulty] growth in the second half.

So if you go back to the slightly the Post and Parcel out of the $7.5 million. I think you got the chunk of it came from the international business. So the Singapore business, if I basically more transparent here, we're still reporting a loss in the first half. So if you recall, right? So in the second half, you should reverse that. So for the full year, the Singapore is also profitable at this point. So by far, the larger.

We're happy with what the Singapore facility in the second half on a full year basis, it is marginally profitable. So nothing exciting about marginally profitable. I guess it's the second half performance that was that we should look at.

So on the second half, could you say it's half half Eliminating shareholder that we're in especially talking halfway. In terms of time line, when can investors expect the first interest development in terms of shareholder revenue?

Okay. We are -- so a lot is being focused on this. Very -- hopefully, the results also give you an inking of what are the things that we have been working towards. So the options on the table. And clearly, we are -- there are specific projects that we are working towards in, let's say, just right at the top, the restructuring of the group some future optionality on the noncore divestments, we are looking at that easy. So through the course of this year, I expect that there will be more that we can share on some of these capital management exercises. As for the individual businesses, we are quite clear that ongoing new businesses, the Singapore business has to optimize the I alluded to it earlier, the physical post offices coming to be a source of opportunity for us if we can streamline that. So that's something that we will be working very aggressively towards Australia, the integration of the business, the synergies exception is number one. Beyond that, the continued growth of the business on, I would say you want to digest what we have that will probably be the right thing. And on the international side, we just continue to expand the network and to work on the cost movement as we continue to see the right costs come down. So I don't know whether the question you have or are you looking at any specific projects, in particular?

In terms of divestments because in a strategic review that we call as a call, and we also talked about an STC potential in terms of -- any update on .

Review with it over the next 3 years, but I would say it's probably more front loaded than over the next few years.

A few questions from. Your international business, specifications 3.5% operating income is majority of that from the international business. Yes, the postal business the profit from

Yes, mostly from the international. So the Singapore business, domestic business is just above EBIT.

And in [Technical Difficulty] upcoming current year.

For the upcoming year will be hard for us to make any projections that is time. While this is all certainly it's the combination of the revenue improvements and that is a function of our market base is quite soft. So we'll see how we can expand on that. The other will be the cost improvement and airfreight continues to be a very big source of cost for us. So that's something that we need to continue to move. As I said earlier, the freight cost has still not reverted to the dynamic levels. so around still 30% higher than pandemic. I mean that's it on year, it has improved 13%. So we continue to see that kind of trajectory coming down. It's a big market of course for us is also -- it continues to move then it's not a straight line right and you have all these conflicts and then you go all So it's kind of actually in terms of improvement. But hopefully, on the other term, you can see that stabilizing.

And manage on the first see the business type company or the position is still on down in terms of revenue and earnings?

It's -- we -- if I can be correct it was trading a bit stronger than I thought over this year. And part of it is because of some of the continued tensions around the world and being free for the some of these movements can impact our profitability sometimes positively. So it remains to be seen how this year is. So I think that our own projections is there will be a softening as it's across the entire industry. But every time something pops up and something happens, there could be an impact of that to that line. So once again a bit better. The question is do you see going back to those numbers in there was a pandemic on that we actually want to that higher.

It improved from last year?

We see that softened.

And then for the Australia business, how do you see the Australian logistics year-on-year for this year, they see the legal trend up by maybe 5% in the care book.

I can't comment on future, but I guess if you look at our track record, despite the conditions, we have been I would say more than stable. We have continued to even organically grow the business. And even when revenue has been our bottom line has continued growth because rate of the 4 business, we have been able to extract certain cost benefits as a result of the tender rate a bit different. Now with the addition of One Express, certainly, that will be inorganic growth that you can see on the top of what we had from last year. So the services is meant to grow. We are not -- we only want to continue to grow the business. There are -- there's been a good track record of us growing the business being very defensive about the volumes our customers. Churn rate is very low, low single-digit churn rates. So if we continue to offer the kind of service that we have to the customers, I think we will continue to keep the improving the yield that we have on that business.

And my last question will be on on share buybacks because I think order value price. So I think you also [Technical Difficulty] value loss profit and the tact is very comfortable. So what was interest is there any plans or any I'm always open to that of CCPs not consideration?