Singapore Post Limited’s Latest Earnings: An Overview Of The Postal Business

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 previous articles, I studied the results of the Logistics and eCommerce segments. They can be found here and here. In this article, I want to run through the Postal 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 FY1718 first quarter earnings presentation

We can see that the Postal business’s operating profit declined despite revenue growing by 9%.

This is what Singapore Post has to say about the segment’s performance:

“Strong international mail growth drove postal revenue to a 9.3 per cent increase, even as domestic mail revenue decreased with more organisations moving to electronic statements.

Cross-border eCommerce-related deliveries rose, especially with increasing volumes from the Alibaba Group. But even as profits from such transhipment activities increased, they were insufficient to offset the decline in domestic mail earnings, resulting in postal operating profit decreasing 13.7 per cent.”

In short, operating profit for the Postal segment declined because of lower domestic mail volume, which offset growth in cross-border eCommerce-related deliveries.

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 Postal segment in its earnings release:

“The decline in domestic letter mail volumes accelerated in Q1 FY17/18, due to increasing migration towards electronic communication.

While the decline is expected to continue, the Group is focused on growing the International mail segment to mitigate the drop in contribution from Domestic mail. The International mail transhipment market remains highly competitive, and margins are relatively low. With the shift in mix towards lower margin International mail, blended Postal margin is expected to decline.

Changes in the international terminal dues system will take effect from 1 January 2018. This will affect not just SingPost but all crossborder eCommerce postal deliveries globally. The impact is being assessed.”

So, the company expects the challenges within the domestic mail business to persist. Moreover, as the Postal segment places a heavier focus on international mail, margins will likely be affected. And to address the issues, these are the measures the company has proposed:

“The Group will continue to focus on improving productivity and efficiency to mitigate margin pressures while maintaining service quality.”

Going forward, investors should be prepared for the Postal segment to continue facing headwinds for the foreseeable future.

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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 Lawrence Nga doesn’t own shares in any companies mentioned.