In early August, Singapore Post Limited (SGX: S08) released its earnings for the first quarter of its fiscal year ending 31 March 2018 (FY17/18). The reporting period is from 1 April 2017 to 30 June 2017. Singapore Post organises its business into three operational segments: Postal, Logistics, and eCommerce. I thought it would be useful to have a look at the performance of the individual segments. In this article, let’s run through the Logistics segment. Editor’s note: Articles on the performance of the eCommerce and Postal segments have been published. They can be found here and here. The financial…
In early August, Singapore Post Limited (SGX: S08) released its earnings for the first quarter of its fiscal year ending 31 March 2018 (FY17/18). The reporting period is from 1 April 2017 to 30 June 2017.
Singapore Post organises its business into three operational segments: Postal, Logistics, and eCommerce. I thought it would be useful to have a look at the performance of the individual segments.
In this article, let’s run through the Logistics segment.
The financial performance
The table below shows the revenue, operating profit, and operating margin for the segment for the first quarters of FY17/18 and FY16/17. It also shows the revenue breakdown for the segment according to its different businesses.
Source: Singapore Post’s FY17/18 first quarter earnings presentation
We can see that the revenue for the Logistics business grew, but operating profit declined.
This is what Singapore Post has to say about the segment’s performance:
“Logistics revenue increased 6.1 per cent as SP Parcels and CouriersPlease made more eCommerce-related deliveries, and as Famous Holdings saw higher contributions from its overseas operations.
Quantium Solutions, however, was impacted by intense competitive pressures in North Asia, which negated improvements in the utilisation of the Regional eCommerce Logistics Hub in Singapore. The challenges in North Asia, along with costs from planned investments to build out SingPost’s eCommerce logistics network, caused logistics operating profit to fall 39.3 per cent”
In sum, competitive pressures (which shows up in lower pricing) in North Asia and costs from planned investments resulted in the 39.3% decline in operating profit for the logistics segment.
What lies ahead
As investors, we rely on many tools, including management’s forecasts, to help us gain insight on what to expect for the near- to long-term performance of our investments’ businesses.
With regard to Singapore Post, this is what the company said about the future of its Logistics segment in its earnings release:
“While the Logistics segment is expected to benefit from growing eCommerce trends, the industry is likely to continue to experience tight operating margins and intense competition.”
In other words, the current challenging environment is expected to persist for a while. But, Singapore Post is trying to tackle the problem. Here’re the measures the company has proposed (emphasis is mine):
“The focus for SingPost moving forward is to drive traffic and volumes onto our eCommerce logistics network and increase utilisation of existing infrastructure, so as to benefit from greater economies of scale and operating leverage.
It will take time for the Logistics segment to grow its profit contribution while it executes on its plans.”
Going forward, it’s important that Singapore Post can grow the volumes handled by the Logistics segment in order to benefit from economies of scale.
Also, like us on Facebook to follow our latest news and 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 Lawrence Nga doesn’t own shares in any companies mentioned.