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What’s Changing at SingPost? A Look Inside Their 1H FY25/26 · Investor Exchange

• 0:02
  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
• 0:08
  Welcome back to the Deep Dive. So we're looking at the H1 results for Singapore
• 0:12
  Post or SingPost, and it really feels like a company trying to perform a pretty daring maneuver.
• 0:19
  You could say that. It's like they're cutting off a lot of the old business,
• 0:22
  a lot of the historical weight, and just hoping that what's left,
• 0:24
  the core business can, you know, fly on its own.
• 0:27
  Exactly. A corporate bungee jump. And this report is so crucial because it's
• 0:32
  not just another earnings report.
• 0:33
  This six-month window, it captures the full financial impact of their whole new strategy.
• 0:39
  The leaner and more focused business model they've been talking about.
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  Right. All the big divestments, the restructuring.
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  The big question we need to answer today is, have they actually shrunk to become
• 0:49
  more profitable or have they just shrunk?
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  That's our mission then, to get past the one-off items, figure out what's really
• 0:55
  driving these numbers, both the good and the bad, and, you know,
• 0:58
  assess what the outlook is for this new, smaller version of SingPost.
• 1:02
  So let's jump right into the top line, because the headline numbers feel almost
• 1:05
  designed to be confusing. They do a bit, yeah.
• 1:08
  They reported a net profit of $18.4 million, which sounds respectable enough.
• 1:15
  But then you look at the underlying net profit, the UMP, and it's a completely
• 1:19
  different picture. It really is.
• 1:21
  That net profit figure, the S18.4 million dollars, it's actually down 17.1% from last year.
• 1:27
  And the only reason it doesn't look worse is because it's being propped up. Propped up by what?
• 1:33
  By S13.9 million dollars in what they call exceptional items.
• 1:38
  Okay, let's unpack that. For anyone who isn't staring at balance sheets all
• 1:41
  day, what exactly are exceptional items here, and why is it so important to,
• 1:46
  you know, separate them out? It means they're one-offs.
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  They're not from the regular day-to-day business.
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  In this case, it's mostly games they made from selling off parts of the company,
• 1:55
  the disposals, and a little bit from the value of their investment property
• 1:58
  going up. So it's like selling the family silver to pay the bills.
• 2:01
  That's a great way to put it. It's real money, sure, but you can only do it
• 2:04
  once. So to see how the actual operations are doing, you have to strip that
• 2:08
  S-13.9 million dollars out completely.
• 2:10
  And when you do that, the picture gets a lot tougher. It becomes brutal.
• 2:15
  The real measure of the business's health, that underlying net profit,
• 2:19
  it plummeted. It went down 78 percent year on year. Wow.
• 2:23
  Landing at just 5.5 million dollars. And that's down from S-25.2 million dollars
• 2:30
  in the same period last year. And we have to remember that S-25.2 million dollars
• 2:34
  from last year still included money from the Australian business they sold off, right?
• 2:39
  Exactly. So the new leaner company is also dramatically less profitable on an operational level.
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  That brings up a really important strategic question, though.
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  If the core business that's left is only making 5.5 million dollars.
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  Did they maybe sell off the most profitable parts of their international business
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  just to simplify things? That's the risk.
• 2:58
  That's the absolute core risk. They got rid of complexity, but they also got
• 3:01
  rid of a lot of revenue and profit contribution.
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  The market might like the clean balance sheet, but what's left is a much smaller
• 3:07
  engine. A much smaller engine generating way less power.
• 3:10
  But to be fair, there is a small silver lining in that $5.5 million profit.
• 3:15
  In the six months before this period, they were actually running at an underlying net loss.
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  So getting to a $5.5 million profit shows that they're cost-cutting.
• 3:25
  It was aggressive enough to pull them back into the black, operationally speaking.
• 3:29
  They stopped the bleeding. So they stabilized the floor, but the ceiling came
• 3:34
  way, way down, which leads us to the revenue.
• 3:37
  Group revenue dropped by a massive 27.4%. I mean, that's a huge fall.
• 3:45
  It's a huge number, yeah. It just shows you how tough the operating environment
• 3:48
  was, especially in logistics. And that drop in revenue meant they had to make
• 3:51
  some equally massive changes on the cost side to even get to that small profit.
• 3:56
  Right. So let's go there next. How did they manage their costs?
• 3:59
  Where did all that streamlining actually show up in the numbers?
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  They were pretty surgical about it. Total operating expenses fell by 25.5%.
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  And if you look inside that number, you can see where the cuts were concentrated.
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  Labor and related costs were down about 10.9%. That's, you know,
• 4:13
  reduced headcount from the streamlined operations.
• 4:16
  Painful, but you'd expect that in a restructuring. Yeah.
• 4:19
  Where did the really big savings come from? From doing less business, basically.
• 4:23
  The single biggest drop was in what they call volume-related expenses.
• 4:27
  That's things like conveyance costs and international terminal dues.
• 4:32
  Can you just quickly explain what those are? Sure. Conveyance is just the cost
• 4:36
  of moving, stuff paying, airlines, trucks, ships.
• 4:40
  Terminal dues are the fees that postal services pay each other around the world
• 4:44
  to deliver international mail. I see.
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  And those costs, they fell by 58.6%. Whoa, almost 60%. So that's a direct signal
• 4:54
  that their international volume has just collapsed.
• 4:56
  It's an undeniable sign. They're spending less money because they're handling
• 4:59
  far, far less volume, especially stuff going across borders.
• 5:04
  So the cost cuts were essential, but they were mostly a reaction to the market
• 5:07
  just shrinking catastrophically. You can't really separate the two. You can't.
• 5:11
  And that's why the operating profit number tells the most honest story here.
• 5:14
  Even with all those cuts, operating profits still crashed by 66%. Yeah.
• 5:20
  Down to $5.7 million. That's the price they paid for restructuring in the middle
• 5:25
  of a global slowdown while also, you know, selling off big parts of the company.
• 5:30
  Okay, so this is where it gets really interesting for me. The new segmentation.
• 5:34
  They've split the business into three buckets now. Right. Effective from April
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  1st. We've got logistics and letters, the post office network, and property assets.
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  This lets us see exactly what's working and what's work. Well, what's not?
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  Let's start with the one that seems to be in the biggest storm,
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  logistics and letters. That's where all the pain is concentrated.
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  Revenue in that segment fell 33%. And the reason for it is just, it's stunning.
• 6:01
  Cross-border e-commerce delivery volumes were down by 63%. 63%?
• 6:06
  Yeah. That's not a slowdown. That's a cliff. It's a collapse.
• 6:09
  Was that all just the market?
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  Or were they intentionally getting rid of unprofitable international routes?
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  It's probably a mix of both.
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  The global e-commerce market is definitely cooling off after the pandemic boom.
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  But this huge drop also reflects them getting out of those complex joint ventures,
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  pulling back from regions where they couldn't compete.
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  And the financial result for that segment? It was a complete U-turn.
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  They went from making an operating profit of $13.7 million last year to an operating
• 6:36
  loss of $4.4 million this period. Wow.
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  That S-18 million dollar swing, that's the core problem they have right now.
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  It's the absolute core risk.
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  And don't forget, that segment also includes domestic e-commerce,
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  which is facing really intense competition and the, you know,
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  the long, slow decline of people sending letters.
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  It's under pressure from all sides. Okay, so that's the tough part.
• 6:59
  Let's look at the post office network next, the traditional mail side of things.
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  What's the story there? The post office network is a story of managed decline.
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  Revenue was down about 14 percent, but, and this is the key thing,
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  they actually managed to make the operating loss smaller.
• 7:14
  Oh, interesting. So they lost less money.
• 7:17
  Exactly. The loss improved from $6.7 million down to $5.8 million,
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  and that's purely down to cost streamlining.
• 7:25
  How so? They've been closing post offices. The number went from 46 down to 40 in a year.
• 7:29
  They're basically right-sizing the network to match the falling demand,
• 7:33
  trying to slow the financial drain. And that leaves us with the third piece, the anchor.
• 7:38
  Property assets. The lifeboat in the storm, you could call it.
• 7:41
  Oh, yeah. This is the one bright spot.
• 7:43
  Revenue here actually went up by 3.4% to $40.6 million.
• 7:49
  Driven by what? Just good old fashion rental income from Singpost Center.
• 7:52
  It's got an incredibly high occupancy rate, 99.2%. That kind of stability right
• 7:58
  now is gold. It really is.
• 8:00
  It delivered a stable operating profit of almost S-24 million dollars.
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  It's pretty much the only thing generating significant an operational income for them right now.
• 8:09
  Without that property income stream, it's hard to see how they could manage
• 8:13
  this whole restructuring. Seems almost impossible.
• 8:15
  Yeah. It gives them the cash flow
• 8:16
  to absorb the losses in the logistics segment while they try to fix it.
• 8:20
  OK, so let's shift to those strategic moves. We know they sold a lot of things.
• 8:24
  Can you put a finer point on what was actually cut loose? It was a very deliberate clean out.
• 8:29
  They wanted to get rid of anything that wasn't core to being a domestic postal
• 8:32
  terrier and maybe a regional logistics player.
• 8:35
  So the Australia business went. That went.
• 8:37
  And crucially, they unwound all those complicated cross holdings with Alibaba.
• 8:43
  They divested 4PX. They shut down the Quantium Solutions joint venture.
• 8:47
  They also got out of freight forwarding by selling famous holdings and Morning Express.
• 8:52
  So the new CEO says this period reflects the full impact of the streamlining.
• 8:57
  It feels like they've really drawn a line.
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  What did all of this do for their financial flexibility? It improved it dramatically.
• 9:03
  They are sitting on a lot of cash now.
• 9:05
  How much? Their cash position was $594.1 million at the end of September.
• 9:11
  And what's amazing is that's after they paid out a huge special dividend of
• 9:14
  over S-200 million dollars funded by all those sales.
• 9:18
  So they turned complicated assets into simple cash.
• 9:21
  Exactly. And used it to pay down debt. Their finance costs are down almost 60
• 9:25
  percent and to build up a big capital buffer for whatever comes next. And what is next?
• 9:30
  What are they planning to do with that buffer, especially when their main business
• 9:34
  is facing such tough competition?
• 9:36
  They're investing in modernization. The big project is this $30 million investment
• 9:42
  to triple their sorting capacity for small parcels. OK.
• 9:46
  It should be fully up and running by mid-2026.
• 9:49
  It's a clear signal that they're committed to fighting for that domestic delivery
• 9:54
  market. They know small parcels are the future, not letters. OK.
• 9:57
  A necessary investment. But even with all this, their outlook still sounds very cautious.
• 10:02
  What are the headwinds they're still worried about? They flagged three main
• 10:06
  challenges. First, just continued weakness in the global logistics and e-commerce sector.
• 10:11
  Second, the constant competitive pressure here at home. And third,
• 10:14
  they specifically mentioned that they need to keep talking with the Singapore
• 10:17
  government to find a sustainable model for the postal service,
• 10:20
  which, you know, is still losing money.
• 10:22
  So if we step back, this half year was really about a strategic shrink.
• 10:26
  They sold assets, they cut costs surgically, and they just barely managed to
• 10:31
  keep the underlying business profitable.
• 10:34
  It was a fundamental reset. They've simplified the entire organization,
• 10:37
  cleared out the complex ownership structures, and given themselves a lot of
• 10:41
  financial flexibility with that cash pile. The foundation is there now.
• 10:45
  But it's a foundation that seems very reliant on their property income and a
• 10:48
  hope that they can turn domestic logistics around. That's the challenge ahead.
• 10:52
  Which brings us to a final and I think a really provocative thought for you,
• 10:56
  our listener, to think about.
• 10:58
  Given that the property segment is basically the only thing providing stable
• 11:01
  income right now and the global market is still weak, just how critical is the
• 11:06
  timeline for that S30 million dollar investment?
• 11:09
  Does it need to succeed in boosting capacity and returning domestic logistics
• 11:13
  to profit before all the external pressures start to eat away at that financial
• 11:17
  foundation they work so hard to build.