Singapore Post Limited Talks About Its Business Transformation and How It Affects Its Dividends

In early August this year, Singapore Post Limited (SGX: S08) released its results for the quarter ended 30 June 2016 and held an earnings briefing.

The mail services provider likely needs no introduction, as it should be well-known by Singaporeans. The company organises its business into three major segments: Postal, Logistics, and eCommerce.

Transforming Singapore Post

There were a number of topics covered during the briefing and two stood out. The first topic was on the company’s business transformation. Chief Financial Officer Mervyn Lim said this in his opening remarks:

“As SingPost continues its transformation into an eCommerce Logistics enabler, the Group will focus on integration and extracting synergies from its acquisitions.”

This is in line with what was shared during the company’s Annual General Meeting (AGM) in July this year. Back then, Chairman Simon Israel made a case for the urgent need to transform Singapore Post to an eCommerce and logistics provider.

But the business transformation comes with some caveats. Acquisitions and the associated integration will cost money. In an earlier statement, Lim said that losses had widened in the eCommerce segment due to integration costs:

“In eCommerce, operating losses increased from S$1.9 million to S$3.5 million due to continued investments in IT and operational capabilities as part of integration efforts.”

This brings us to Singapore Post’s dividends.

Wither dividends? 

Singapore Post has a few choices on where it allocates its profits. In general, a company’s profits can be reinvested back into the business, or be used for acquisitions. If there is money left over, a company can choose to pay out dividends to shareholders or buy back shares.

Lim said this during the briefing:

“In terms of the dividend policy that we have set out, it came out in the AGM by Chairman [Simon Israel] where he has already indicated that the dividend policy would be reviewed in order to ensure the sustainability of the business during the transformation while providing for growth.”

In short, Singapore Post is reviewing whether its current dividend is sustainable in light of the investments needed for its transformation and for the company to continue its growth. Lim said:

“And so what that means is that essentially is that we are in a period of transformation, and so we must always make sure – as we have indicated in the Annual General Meeting that our shareholders are always focused on recurring earnings, underlying earnings, and so our guideline was always on the underlying net profit number that we have shown out.

So what we are saying is that, whatever the dividend that we pay out must be sustainable during the transformation period and it also provides growth.”

To be sure, there is no hint yet of what may happen at the end of the review. Will Singapore Post reduce its dividend in favour of investments for transformation and future growth? Comments from management so far have been leaning toward this angle, but only time will tell.

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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.