Singapore Post Limited (S08) Earnings Call Transcript & Summary

Good morning. Thank you, everyone, for joining us today to our second half and full year results briefing for SingPost. This session is webcast. And today, we have our Group CFO, Isaac Mah, who will first bring us through the presentation before we open for Q&A. So now I'll hand over the session to Isaac.

Thank you, Selena. Good morning, everyone, and thank you for joining us today. Over the past year, there has been a significant shift by the group marked by a major structural [indiscernible] and divestments. I would like to begin by providing an overview of the key developments before walking through the financial highlights. One, we completed the sale of SPAI, which is the group's Australian business comprising FMH and [ subsidiaries ]. This was transacted at an enterprise value of AUD 1 billion, and generated a gain on disposal of SGD 302 million. Two, SPAI was formerly the largest segment, contributing over 50% of the group's revenue in [ Australia ]. This divestment was a major milestone and has changed the group's profile and scale. We will need to reset the group's strategy and direction and are in the process of doing so. Three, given the change in the group's profile, we have also recalibrated the organization structure to realign the cost base with scale and structure of the group business post divestment. Duplicate functions at the corporate level were removed and operational functions reorganized to improve operating efficiency across the organization. These actions are necessary to preserve financial agility and support sustainable performance. Four, separate to the group's strategy reset, we shared that we were reviewing the International business. We assessed the long-term viability of the cross-border business, amidst the difficult environment, evolving global regulations, other challenges such as the competitive landscape. Given developments in the global commerce such as the trade tensions, we made a decision to reintegrate the International cross-border business into the Singapore Postal and Logistics business. This move is expected to achieve business synergy and improve operational efficiency for SingPost going forward. Five, the post office network remains loss-making. And SingPost is engaged with Singapore government on the future operating model that will place the postal service on profitable and sustainable footing. Now moving on to the financial results. What is important to note is that the sale of SPAI, we have deconsolidated the business in the full year results upon completion of the transaction on the 27th of March 2025. Discontinued operations reflect the performance of the divested business, while continuing operations cover the current businesses in the group's portfolio. We faced a challenging operating environment in the second half, particularly for the International cross-border business and in the Australian market. However, 2 of the group's businesses, Property and Freight Forwarding performed well. This resulted in a marginal loss of SGD 0.5 million in the second half. For the full year, while revenue was lower largely due to the International business, operating profit grew by about 31% year-on-year. After-tax profit came in at SGD 245 million on the back of the exceptional gain from the sale of SPAI. Excluding such one-off items, the underlying net profit was lower year-on-year due to the higher finance and tax expenses and lower interest income and lower contributions from the discontinued operations. In the following slides, we will discuss the segmental performance. To recap, at the start of the financial year, we changed the segmental reporting to 3 segments of Singapore, International and Australia. In the sale of SPAI, which is part of our Australian business, the Australia segment now comprises the remaining business of Quantium Solutions in that market. This table shows the performance of the remaining business that is excluding the discontinued operations. Overall, group revenues were lower in the second half and full year, amidst the challenging environment. The Singapore segment registered a modest revenue increase of 2.9%, underpinned by the Property business, which reported a strong 11.9% growth. Now moving on to operating profit. On the operating profit, Property and Freight Forwarding improved in the second half, though this was offset by lower profit from Singapore Postal and Logistics and losses at the International cross-border business. For the full year, the higher group operating profit was due to the increases from Singapore and Property, which outweighed the lower performance in the other segments. On the full year performance as well, we presented a pro forma table to show how we will look at previously unallocated business related to corporate overheads were allocated into the Postal and Logistics business. As you see in the table, if you see -- as you see in the table on the bottom right-hand side, if the disposal of SPAI had taken effect on 1st April 2024, the Postal and Logistics business would have made a loss. However, we have taken steps to rightsize the cost base. Now going into the segments. In Singapore Postal and Logistics, the second half performance was weaker mainly due to lower delivery volumes and a lower contribution from other services such as financial services, mailroom and warehousing, some of which ceased during the year. While this was largely reflected in the full year, the benefit of the postage rate increase in the first half helped mitigate the overall performance. As a result, full year revenue was relatively stable with operating profit. The other business in Singapore segment, Property leasing comprised mainly SingPost Centre. Revenue and profit at SingPost Centre showed a good performance. Rental income was higher on the back of increased occupancy at both the retail and office space. Overall occupancy rate of the Property rose 2 percentage points. It is at 98.2% compared to 96.2% last year. In the International segment, the results were mixed. As mentioned earlier, the International cross-border business has been facing significant challenges in its competitive operating environment, currency and air freight cost volatility as well as geopolitical risk. Cross-border delivery volumes are running amidst these challenges, resulting in the decline in revenue and profit performance. On the other hand, the Freight Forwarding business under Famous Holding has done relatively well on the back of highest [indiscernible] rates during the period, although overall profit was down for the full year on margin compression. Finally, in the Australia segment, as I've mentioned earlier, this comprises only QS Australia. Revenue has come down mainly due to the streamlining of operations in QS Australia and cessation of QS New Zealand business. Now on to financial position. The Australia divestment has significantly enhanced the group's financial standing supported by the proceeds and disposal [indiscernible]. As we indicated previously, the unlocking of value of our assets will go towards debt reduction, shareholder returns, strengthening the balance sheet and funding future growth of the business. All the Australian dollar-denominated borrowings have since been repaid. The remaining borrowings on our books now comprise of Singapore dollar medium-term notes totaling SGD 350 million. The net cash proceeds have boosted the cash position to almost SGD 700 million. This cash position is before accounting for the proposed special dividend. To return value to shareholders, the Board has proposed a special dividend of SGD 0.09 per share for shareholders' approval at the upcoming AGM. This amounts to SGD 202.5 million, which represents approximately 2/3 of SGD 302 million gain on disposal. Now allow me to speak on [indiscernible]. In terms of the operating environment, uncertainty in the global economy has intensified with ongoing trade tensions and unsettled supply chains disrupting international commerce. These pressures are further accelerated by geopolitical tensions. These challenging conditions intensified in the second half and are expected to continue in the financial year ahead. On the group's business outlook. The impact is expected to be pronounced in the logistics sector and is particularly challenging for the cross-border business. We are responding to these challenges by sharpening our focus on the core business, while reinforcing synergies to navigate the evolving landscape. Operations are being streamlined to improve efficiency. The International cross-border business is being reintegrated with core Singapore Postal and Logistics business to optimize resources and drive operational synergies. Thus, the cross-border logistics services remain a highly relevant and valued component of our service offering. We will continue to deliver as part of SingPost integrated solutions, leveraging the International postal network. We are also working on strengthening the SingPost Postal and Logistics capability and enhance the business. We have announced an SGD 30 million investment to expand processing capacity for small parcels as a regional e-commerce logistics hub, and this is targeted for completion by mid-June 2026. On the post office network, this remains loss-making, and we are engaged with the Singapore government on the future operating model that will place the postal service on a profitable and sustainable category. Lastly, we remain focused on disciplined capital management, prudent cost management, protecting cash flows to maintain financial strength. As I've shared, we are realigning the cost base to reflect the structure and scale of the post Australian divestment organization. These will help us preserve financial agility and support sustainable performance in the challenging environment ahead. The group also continues to explore opportunities to progressively divest and unlock value of noncore business and assets. Resetting the group's strategy post divestment of the Australia business represents a significant step forward in our journey. This is ongoing, and we will update as appropriately. With that, I come to the end of my presentation. Happy to open the floor for questions. Thank you.

[Operator Instructions] Jarick Seet from Maybank.

Yes, just to check for your second half, slightly the weakness is supposed to persist into next year. So basically, for the full year, your core business should be breakeven to losses. Is that correct to assume?

So we have already taken action to rightsize and streamline the structure of the business as well as to unlock business synergies. So a lot of these actions, we have actually started taking at the start of the year, which was the fourth quarter. And these actions continue into this -- into the current financial year as well. What we have shown previously in terms of the pro forma, that was on the basis of the full year impact of costs in '24, '25. So given the activities that we have done in the last quarter, we should see a lot of these savings in the new financial year.

How much? Can you quantify like how much is the savings roughly, let's say, half [ a year or per ] year?

So at this point, we are not able to share that yet. But most definitely, you'll see this in the first half itself. But maybe one way to look at it as well is that even compared from the prior year to this year, that cost has already come down and it will continue to come down going forward as well.

Any rough sense like a range because it's very hard for us to quantify like what kind of cost savings? And then only way to know this, like 6 months later because in the first quarter, your total EBIT -- I mean, EBIT, yes, so is there any range that we can -- roughly what kind of range of cost savings and resource -- so this is -- of course, it's hard for us to actually even model anything on this.

So I think what I can say is that it will be a material number. I think where we are today with the business is that we are undergoing a Board transition as well as a reset of the strategy, right? So I think it becomes very difficult for me to give you any sense at this point of time. But rest assured, there has been a lot of actions taken, and we're continuing to do that work while the Board transition is ongoing at the moment, and that will then facilitate the acceleration of the strategy. As you have seen in our announcements, we have recently appointed 3 new directors. And we will be sharing more information on this transition in the coming weeks as we move into the AGM in 4 months' time.

Understand. And of the FY '25 revenue, how much of it is from the results sort of?

So the way that we have shown our results, the full SGD 813 million or SGD 814 million revenue is from continuing operations. So the way that we have presented our accounts does not include the discontinued -- revenues of the discontinued operations. The discontinued operations are shown -- the profits are shown as a single line. But if you were to look in the notes of the accounts, you will see that for the current year, I believe the discontinued operations had revenues of about SGD 1.1 billion.

Got it. Any updates also on the Freight Holdings? Because I think previously, this was one of the assets for sale, and we understand that talks are ongoing. Any updates on that?

So Famous, which is a Freight Forwarding business, it continues to be identified as a noncore business. So discussions with potential parties to acquire the business are ongoing. Unfortunately, at this point in time, there's nothing additional that I can share with you. But we are quite pleased with the performance of the business in the prior year, and it continues to generate value for us going forward.

So I mean, previously, I think I remember the business was guiding for -- expect some decline. But actually, the business performed well better than what all of us expected. I think it was quite flat. So would that be able to get you a better pricing in terms of selling the business, more than what you previously expected?

So I think that is one factor to consider. You also need to consider other factors like the volatility in the market as well. So that space right now is facing quite a bit of uncertainly just because of the geopolitical situation. Fortunately, for Famous, this exposure is somehow managed just because of the trade flows or the lanes that it's more involved in. However, if there were to be escalation in terms of this [indiscernible], I don't think any freight forwarding company will be spared.

Understand. And assuming, let's say, the buyer, so how does he value the company? Value by estimated profits forward? Or if you look at your historical last year's numbers to give you a value?

Most typical buyers will look at both. So they will look at the historical performance as well as the potential to generate cash flows going forward as well as what the market comps are trading at. So it typically would -- this will be kind of the various angles a buyer will come from.

Okay. I understand. And of course, I understand that you've been talking on -- I mean, you've been discussing this for quite a while, right? So last year. So now that the numbers are slightly better than expected, would any pricing change because then the forward be adjusted upwards and historical? So the pricing should be either going up or they buy cheaper in a PE multiple?

As I shared, right, that is only one factor. So I need to look at where the market comps are and what's the volatility going forward. There are a few factors involved. And I think on top of that, there's also a few specific factors like certainty of closing and what are the risks. All this will need to be considered in totality when we consider any offer from the buyer.

I understand. So the estimated pricing remains the same range?

Yes, it's not changed, but it do remain in the range.

I think just on your exposure, either Asia to China route -- sorry, Asia or China to the U.S. route, can you maybe just share what was the exposure at a group level or even International business?

So at the group level, our exposure is predominantly Asia. So while we do have some exposure to the U.S., at this point, it's not material to our overall trade flow. But as I said, as I was sharing with Jarick as well, if there is any impact on the kind of U.S.-China essentially shape, we will likely reshape the rest of the route.

On the cost savings, where is the source of this cost savings coming from...

So I think it's twofold. Firstly, we are looking at collecting the corporate structure. And that has mostly already been executed. As you would have seen, a number of my colleagues have exited the business. And we continue to look for ways to improve efficiencies within the business. Secondly, we are also looking at unlocking business synergies by relooking at some of our processes as well, so that's ongoing. And that can also be seen with the reintegration of the International business, which is our core business.

Just one last one. I noticed the Singapore e-commerce. Is it a reflection of the industry? Or was it like more specific?

So I think as we shared in the last quarter, we did have some service issue with one of our customers. I'm glad to say that we have already recovered from those service issues. But more generally, the market is also a bit softer just because of the economic uncertainty. So definitely, that has kind of impacted the market. But we are also starting to recover, and we should see improvements.

Isaac, just one question. So I see that the post office network is still loss-making to some degree. So I think the [indiscernible] review with the government going to make -- would it basically affect this cost line? So I see that -- like for the second half, it kind of improved like 10% from the previous year. What are some rationalization of post office network?

So unfortunately, in the last year, we have not been able to make too many changes to the network. The slight improvement that you've seen there is actually the wage credit. So there was a wage credit last year that was recognized just across -- unfortunately, it was kind of recognized for 2 years in the financial period. So that was a bit of an artificial period. But we are continuing to engage the government, and this is one of the core focuses of my colleagues in terms of engaging the government to address this. I know we have been saying for a while now that we are engaging with the government for a sustainable model. But we will continue to persist. So I think this is something that is top of our...

And to follow-up to that question. So the cost savings do not come from this, just basically on the logistics side, not on the postal network side?

Yes. Not the post office. So that debt savings has not fully materialized.

Then what's your view on another postal hike by the government? So you think is it possible? Is that amount of...

That is one of the areas where we are engaging the government.

On the longevity of the business, how do you see -- so that said, [indiscernible] how do you see 2 to 3 years now...

So first off, I think we are very committed to our plan to continue to unlock value for shareholders. And what that has done is that not only have we crystallized value creation and brought forward the unlocking of value and return capital to shareholders, but we have also strengthened our balance sheet. So based off disposal of SPAI, we have paid down approximately SGD 600 million of debt. We are currently in a net cash position. So we are very well positioned for the next phase of growth. We believe that the business in Singapore is a sustainable one, and there is room for growth. However, at this point in time, while we are working through the strategy reset as well as the refresh of the Board, I'm unable to share further details with you. In the coming months as we complete that transition and the reset of the strategy, then we will be able to come back with more.

A question on basically financial expense. So of course, with the left for the SGD 350 million on the balance sheet, I remember the interest rate is about 2%. Is that right?

So the remaining MTNs of SGD 350 million will cost us approximately SGD 10 million in interest expenses.

Yes. So it's basically -- yes, but it's not shown in this -- the full year results...

No. So full year results, if I recall, our finance expense is about SGD 26 million, but that includes the amounts paid on the Australian dollar funding for acquisitions. So that number should drop [ SGD 6 million ] to [ SGD 10 million ], but that doesn't include the...

Just trying to get a sense on what actually goes on behind the scenes when you consolidate the Singapore and International business together? And what sort of synergies we can expect from there?

Right. So previously, the 2 teams were run by a separate management team. And right now, given that the structures have collapsed, we are working a lot closer in terms of using customers, both customers local as well as international. Previously, the International business was focused more on growing kind of overseas lanes, which we have found very challenging to grow just because those commercial lanes, we face a lot of competition, right? So where we are refocusing now is where our competitive advantages are, which is within Singapore and the postal network. So providing those types of services where we have profitable lanes to our customers, both inside and outside of Singapore, but with a focus more on product or the solution that's driven through Singapore, if that makes sense.