Is Singapore Post Limited’s Traditional Mail Business Dying?

When the name Singapore Post Limited (SGX: S08) is mentioned, the likely image in a Singaporean’s mind would be the traditional snail mail that is delivered daily to our mailboxes.

When it comes to the business of Singpost, the same mail business still makes up a significant part of its revenue and profits today. For the financial year ended 31 March 2015 (FY2014/15), the mail segment accounted for nearly 51% and 77% of Singpost’s revenue and profit, respectively.

Due to the significance of this mail business, we might want to dig a little deeper to understand how this segment has done over the past five years.

Deeper dive

From the graph above, we can see that Singpost’s mail business is made out of four major pieces: Domestic Mail; International Mail, Hybrid Mail; and Philatelic (think stamps!).

image (1)

Source: Singpost’s presentations

Over the past five fiscal years, revenue from the mail segment has increased from $386 million to $501 million. We can also see that the bulk of the revenue came from the Domestic Mail and International Mail sub-segments for the period under study. In particular, it has been International Mail that has driven most of the top-line growth for the segment.

But as the above was happening, Singpost was also struggling with declining traditional mail volumes. For FY2010/11, the mail outfit managed 134.3 million public mail items. By FY2012/13, the figure had dropped to 119.3 million. It should be noted however, that the majority of the mail segment is made out of bulk mail delivery services. For context, Singpost managed 815.5 million in bulk mail in FY2012/13.

Singpost highlighted its challenges in the Mail business under the risk section of its annual report for FY2013/14:

“The Mail business of the Group faces the challenges of structural decline in letter mail volumes and competitive market conditions. At the same time, the Mail business also suffers from the impact of rising operating costs in Singapore as well as increasing terminal dues (i.e. outpayments to other postal operators for the delivery of international mail).

As the Public Postal Licensee, SingPost is committed to meeting its obligations and upholding service quality standards. The Group has undertaken several initiatives as part of the transformation programme to enhance its role as a trusted postal intermediary.

Over three years from FY2013/14, SingPost will invest S$100 million into the postal infrastructure, service quality and productivity improvements. This includes S$45 million for the upgrade of the mail sorting infrastructure to improve productivity and service levels.”

Overall, Singpost appears to be holding its ground for its mail business at the moment. But, the challenge of managing costs while mail volumes decrease would be something to keep an eye on.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.