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What Singapore Post Limited Has To Say About Its Transformation And Acquisitions

In Singapore Post Limited’s (SGX: S08) annual general meeting held last month, its new chairman, Simon Israel, said that the company is on a “burning platform.”

The company’s traditional mail business has stalled, and Israel warned that disruption could be swift when it comes.

Singapore Post has been working over the past few years to shift its business towards eCommerce logistics and away from its traditional mail bread-and-butter. In the first-quarter of its financial year ending 31 March 2017 (FY16/17), Singapore Post said that its eCommerce-related revenues accounted for over 49% of total sales.

Much of the progress has been driven by acquisitions. Singapore Post has been acquiring companies at a rapid pace to shift its business towards eCommerce-related activities.

The approach has brought a sharp increase in revenue, but has also left Singapore Post with a net debt position. As of 30 June 2016, Singapore Post has S$135 million in net debt.

These developments beg the question: Where are Singapore Post’s acquisitions going from here? Singapore Post gave some insight to this matter in its recent reply to questions on its annual report from the non-profit organisation, Securities Investors Association (Singapore). The company said:

“We are an eCommerce logistics enabler. Our strategy is B2B4C [business-to-business for consumers], i.e. to enable our customers to tap the eCommerce market and serve the end-consumers. We provide end-to-end eCommerce logistics solutions from the online store front to the back-end logistics of warehousing and delivery.”

Singapore Post said that it is making solid progress and cited two figures to back its claim. The logistics and mail services provider said that it processes S$5 billion worth of gross merchandise through its logistics network and has over 100 leading brands under its umbrella.

In the reply to SIAS, Singapore Post also explained its rationale for two recent acquisitions, TradeGlobal and Jagged Peak:

“i) Footprint – We have acquired a footprint in the US, the second largest eCommerce market in the world after China. We now operate more than 50 fulfilment centres in 19 territories across all key eCommerce markets in the US, Europe, China and the rest of the Asia Pacific markets.

ii) Expanded market – We now provide integrated eCommerce logistics solutions to customers across a global network, giving them access to their home markets and helping accelerate their expansion into other geographies.

We gained direct access to eCommerce customers in the US via TradeGlobal and Jagged Peak and will leverage our logistics network in Asia-Pacific to expand these customer’s online footprint in Asia. At the same time, we will also leverage TradeGlobal and Jagged Peak’s logistics network to bring our Asian eCommerce customers to the US.

iii) Increased customers / volumes – We have a stronger customer base and greater eCommerce volumes, with more than S$5 billion of gross merchandise value processed annually across our networks.

iv) Technology – We have access to and can leverage Jagged Peak’s leading technology in omnichannel order management systems. The EDGE technology and Flexnet order management system provided by Jagged Peak allows us to plan and store our goods in warehouses closest to customers’ locations, ensuring cost efficient and timely delivery.”

Singapore Post will be monitoring the performance of its acquisitions. The company said acquisitions will be tracked based on revenue growth, margins, EBIT [earnings before interest and taxes], EBITDA [earnings before interest taxes, depreciation and amortisation], as well as shareholder returns.

Another topic Singapore Post touched on in its exchange with SIAS is the company’s view on future acquisitions. It said:

“As the Group continues with its transformation initiatives, the focus will be on post-merger integration and extracting synergies from the acquisitions made over the last few years.”

It looks like Singapore Post has hit the pause button for the time being when it comes to acquisitions. It will be taking time to digest what it has acquired over the past few years.

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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.