Singapore Post Limited’s Financial Year in Review: Postal’s Slow Decline

Earlier this month, Singapore Post Limited (SGX: S08) reported its full year earnings for its financial year ended 31 March 2017 (FY16/17).

Singapore Post has three business segments: Postal, Logistics, and eCommerce. In this article, we will be taking a look at how its Postal segment fared in FY16/17. The segment accounted for about 40% of Singapore Post’s total revenue (excluding inter-segment eliminations) for the fiscal year.

Source: Singapore Post’s earnings presentation

For FY16/17, revenue from the Postal segment grew 1.5% to $544.1 million. Singapore Post’s deputy chief executive officer and chief financial officer, Mervyn Lim, gave insight into the different sub-segments that make up the postal business during the company’s FY16/17 fourth quarter earnings briefing. He referred to the following slide in his comments:

Source: Singapore Post’s earnings presentation

Lim said:

“Domestic mail revenue continued to decline with more companies implementing e-statements. This was mitigated by the increase in International mail volumes, largely driven by cross-border eCommerce-related deliveries from the Alibaba Group.

Post office products and services revenue declined by 18.3%, reflecting the shift to alternative online options such as internet bill payments.”

In mid-2016, Singapore Post chairman Simon Israel warned that the company’s Postal segment can be disrupted. From Lim’s comments, we can see how e-statements and internet bill payments are replacing conventional snail mail. However, Lim also added that cross-border deliveries for Singapore Post have benefited from its partnership with Chinese eCommerce giant Alibaba Group.

But, the growth of the cross-border business comes with a downside. Lim said:

“Operating profit declined 4.2%, largely due to the decline in contribution from Domestic mail. The decline in margins to 27.7% reflects the shift in mix from Domestic mail to lower margin International transhipment mail.

Despite the decline, our Postal margins are still one of the highest compared to other postal organisations, which demonstrates the efficiency of our postal operations.”

In short, the Postal segment’s revenue was up from the rise in international mail activity, but its operating margin suffered due to the international mail business’s inherently lower margin. It is likely that this trend could persist in the future.

Investors will have to observe how Singapore Post’s business evolves in 2017 and beyond.

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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.