In early February Singapore Post Limited (SGX: S08) released its third quarter earnings update for its fiscal year ending 31 March 2018 (FY17/18). The reporting quarter stretches from 1 October 2017 to 31 December 2017.
As a quick introduction, Singapore Post is a mail and logistics services provider. It organises its business into three main segments: Postal, Logistics, and eCommerce. Given that the company has three different businesses, I thought it would be useful to have a look at the performance of the individual segments.
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In a previous article, I had discussed the eCommerce segment. In this article, I will be running through the Logistics segment. [Editor’s note: An article on the Postal segment has been published. It can be found here.]
The financial performance
The table below shows the revenue, operating profit, and operating margin for the segment for the third 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 third quarter earnings presentation
We can see that the Logistics segment experienced a poor quarter. Its revenue growth was minimal, while its operating profit sank by 44.8% to $4.9 million. On a sub-segment basis, we can see that all of the businesses within the Logistics segment grew their revenues in the reporting quarter. The only exception was Quantium Solutions, which faced tough competition in its Hong Kong operations that negated the benefit of improved utilisation in its Singapore operations.
SP Parcels and CouriersPlease grew their revenues on the back of higher last mile delivery volumes in Singapore and Australia, respectively, while Famous Holdings saw higher freight forwarding volumes.
In terms of the operating profit performance for the Logistics segment, the major culprits were an increase in line haul and handling costs, and a lower contribution from Quantium Solutions.
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 latest earnings update:
“Over the past few years, we have built out an eCommerce logistics network and invested in infrastructure to support growth in volumes. Partly as a result of costs from planned investments in our network, Logistics margins have declined.
SingPost will continue 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. We will rationalise and integrate our businesses across geographies and maximise the potential of our investments.
It will take time for the Logistics segment to grow its profit contribution while it executes on its plans.”
In other words, Singapore Post is trying to right the ship at the Logistics segment, and it will take time for the efforts to pay off.
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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.