SingPost hit by impairments


SingPost’s annual results for the year ended March 31 showed that 2016 was a tough year for the mail and logistics provider. Its shares were hammered on May 15 – the first trading day in the wake of the announcement.

Revenues surged 17% to S$1.34bn, but most operating costs rose more than sales on a comparable basis, while impairments impacted economic profits.

Labour expenses were up 14.9% to S$345m; traffic expenses and cost of sales soared 28.6% to S$688m; administrative costs increased 9.4% to S$144m; depreciation and amortisation as well as finance costs also hindered operating profitability.

Total costs rose 22% to S$1.25bn from about S$1bn in the prior year.

Expenses rose due to higher terminal dues paid for increased international mail volumes, as well as higher cost of sales and outsourced services related to TradeGlobal and Jagged Peak, respectively.

Underlying profits fell 24.7% to S$115.6m from S$153.6m due to “transformation investments and domestic mail decline”, the company said, while it recorded impairment charges of S$208.6m that were “offset by a S$108.7m fair value gain related largely to SingPost Centre”.

Including exceptional items such one-off impairment charges and earnings from affiliates, pre-tax income plunged 80.9% to S$54.9m from S$287.2m one year earlier, with net profit attributable to equity holders down 86.6% to S$33.4m.

Chairman Simon Israel said it was “unfortunate that such a significant impairment to the TradeGlobal acquisition has to be made so soon after the transaction”.

However, a “turnaround plan is being executed with the objective of recovering as much value as possible for shareholders”.

SingPost said that domestic mail revenue “continued to slide as more companies switched to electronic statements. This was offset by higher international eCommerce-related deliveries”, buoyed by increased volumes from Alibaba.

The shift in the revenue mix towards the lower margin international mail business saw postal operating profit decline 4.2% to S$150.7m, despite mildly higher sales. The postal unit is the group’s second-largest business, ranking behind the logistics division, which turned over S$636m last year.

“This trend is expected to continue,” it noted, adding that innovation of new products, as well as productivity and efficiency measures are being deployed to mitigate margin pressures. In this context, there could be an impact from changes in the international terminal dues system which will take effect from January 1 next year.

Logistics saw a rise in revenue of 1.7%, but operating profit decreased to S$23.6m from S$38.8m on the back of higher investment in the e-commerce logistics network, intense competition and depressed industry freight rates and volumes.

“SingPost is developing its business with Alibaba to drive volumes on its commercial logistics network,” it said.

Revenues from all e-commerce activities associated to postal, logistics and other core activities increased to S$680.2m from S$412.4m, totaling 50.4% of group revenue, while overseas revenues rose to 50.5% as a percentage of group revenue, against 43.9% in the prior year.

Net cash from operating activities rose to S$200.1m from S$131.4m, as it returned to positive free cash flow after two years of high capital expenditure. As at March 31, 2017, cash and cash equivalents stood at S$366.6m, up from S$126.6 million at the end of March 2016, but its net cash position was only S$2.6m.

Source: Transport Intelligence, May 15, 2017

Author: Alessandro Pasetti