Singapore Post Limited (SGX: S08), or SingPost, is a company with a long and rich heritage in Singapore.
With roots tracing back to 1819, the company has weathered its fair share of ups and downs.
However, the COVID-19 pandemic brought about a unique set of challenges for Singapore’s sole postal service provider.
The severe disruptions caused by the pandemic, in addition to the digitalisation of services that reduced the need for physical mail, have negatively impacted SingPost’s core business.
The company is in need of a business transformation to help it get back on its feet.
Here are four key points from the group’s latest financial results for the full fiscal year 2021 ended 31 March 2021 (FY21).
Disruption from the pandemic
SingPost reported revenues of S$1.4 billion in FY21, for a year on year increase of 6.9%.
Operating expenses, though, surged by 13.6% year on year due to supply chain disruptions brought about by COVID-19.
As a result, the group’s underlying net profit plunged 40% year on year, from S$100.2 million a year ago to S$60.1 million in its latest quarter.
The company’s core segment, post and parcels, posted revenue of S$742.8 million in FY21, down 2.7% year on year.
The decline in revenue was due to declines in the volumes of letters and printed papers, as well as significantly higher conveyance costs for international mail and parcels due to air travel constraints.
These factors significantly reduced profit margins for the segment, which recorded operating profit of S$43.5 million in FY21, down 63.7% year on year.
Free cash flow and dividends
Despite the downbeat set of earnings, SingPost continued to generate healthy cash flow.
Operating cash flow for FY21 stood at S$215.4 million, 17.6% higher than the previous fiscal year’s S$183.2 million.
There was also a significantly higher investing cash outflow of S$67.5 million due to the group’s acquisition of a 38% stake in Freight Management Holdings (KLSE: FREIGHT) (FMH).
That said, in light of the uncertainty caused by the pandemic, the company slashed its final dividend from S$0.017 to S$0.006.
This brings the group’s total dividend for FY21 to S$0.011, a steep decline of 59.3% from the S$0.027 paid out in FY20.
Property division
SingPost’s property division comprises commercial property, rental and self-storage businesses.
The division also includes SingPost Centre (SPC), which comprises a retail mall and office spaces.
Occupancy at SPC declined marginally during the pandemic.
The mall reported occupancy of 94.1% as of March 2021, down from full occupancy in March 2020 and 99.8% in December 2020.
To be sure, the lower occupancy was due to repositioning plans at the mall, and the company expects that occupancy will soon return to near 100%, pending lease documentation.
Committed occupancy stood at 96% as of 20 April 2021.
Tenant sales have also recovered to 85% of pre-COVID levels after falling sharply in the first half of FY21 due to the circuit-breaker imposed to curb the spread of the virus.
However, on a year on year basis, tenant sales were still 13% lower year on year for the second half of FY21.
eCommerce opportunities
Thankfully, demand for eCommerce services continued to grow.
eCommerce revenue under the Post and Parcel segment soared 59.3% year on year for FY21, while revenue from eCommerce logistics services jumped 32.2% year on year.
Overall, the eCommerce segment accounts for 65% of the group’s revenue and is poised to expand further due to increased e-commerce adoption worldwide.
SingPost will continue to build its capabilities to capture growing opportunities, such as their Future of Post initiative to deliver smart urban logistics services.
Public trials have commenced for PostPal, the world’s first-ever “Smart Letterbox”.
The company’s acquisition of a stake in FMH also expanded its operations in Australia, entrenching the country as a second home market.
Get Smart: More e-commerce monetisation needed
SingPost is witnessing a steady decline for its legacy post and parcel service as the volume of letters should continue to fall.
The group is moving in the right direction by pivoting towards the faster-growing e-commerce segment.
However, it needs to improve its monetisation efforts to increase the e-commerce contribution to its bottom line.
Otherwise, the postal giant’s profits will continue to slide without any respite.
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Disclosure: Herman Ng does not own shares in any of the companies mentioned.
