A Closer Look: How Did Singapore Post Limited Fall into Losses?

Singapore Post Limited (SGX: S08) recorded a loss of over $65 million in the quarter ended 31 March 2017.

The size of the loss came as a surprise as Singapore Post had recorded a profit of $105 million in the same quarter a year ago. As a result, the full year profit for the company’s fiscal year ended 31 March 2017 (FY16/17) was down 86.6% to just $33.4 million.

A closer look

To understand what happened, we can start from the slide below:

Source: Singapore Post’s earnings presentation

From the slide above, we can see that exceptional items of $88.7 million took a big bite out of the net profit for FY16/17. Without the exceptional items, Singapore Post’s net profit would have been much higher, albeit still lower than the previous fiscal year.

In the next slide, Singapore Post gave more insight on the exceptional items:

Source: Singapore Post’s earnings presentation

From the slide above, we can see that the TradeGlobal impairment accounted for the bulk of the exceptional items. Singapore Post had warned about this impairment during the third quarter of FY16/17.

TradeGlobal was acquired for $236 million in late 2015. Due to the severity of the impairment, Singapore Post engaged an independent global business advisory firm, FTI Consulting, to assess the extent of the situation.

During Singapore Post’s FY16/17 fourth quarter earnings briefing, deputy chief executive officer Mervyn Lim said:

“The principal issue is that TradeGlobal has significantly underperformed the business case which supported the investment. Instead of a projected profit of $9.4 million for FY16/17, TradeGlobal incurred a significant loss of $25.8 million.”

There were both operational and structural challenges at TradeGlobal. Singapore Post is addressing the operational issues. Lim said:

“Key structural challenges which will impact the business moving forward include: Disruption in the US fashion retail industry which is adversely affecting key customers; loss of two large key customers which accounted for 30% to 40% of revenue; and sustained cost pressures arising from labour shortage in the Cincinnati area.

A turnaround business plan is being executed by management. In the plan, TradeGlobal’s prospects have been rebased given the structural changes.”

The painful loss of value at TradeGlobal is a keen reminder of the challenges that Singapore Post is facing while it transitions its business away from its traditional postal services to new areas.

Whether or not Singapore Post can be successful remains to be seen.

For more stock analyses and investing tips, you can sign up here for your FREE subscription to The Motley Fool's weekly investing newsletter, Take Stock SingaporeIt will teach you how you can grow your wealth in the years ahead.

Like us on Facebook to follow our latest hot articles. The Motley Fool's purpose is to help the world invest, better.

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.