Singapore Post Ltd
SGX:S08
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Singapore Post Ltd
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Ladies and gentlemen, thank you for holding. We're now ready for the briefing. I shall now hand over to the management of SingPost to begin the briefing.
Hello, good morning, everyone. Welcome to SingPost's Results Briefing for the Fourth Quarter and Full Year of FY 2018/'19. My name is Jason from Investor Relations. With me today is our Group CEO Mr. Paul Coutts as well as our Group CFO Mr. Richard Lai. And joining us today is also our CEO of Postal Services and Singapore, Mr. Wee Heng Phang.
I'll now hand over the session to Richard to bring you to our results. Richard?
Okay. Jason. Good morning, and welcome to our results briefing. Let me first share an overview of our full year results. Group revenue rose 2.9% to $1,556.7 million led by growth in the Post and Parcel and Property segments. However, due to higher losses for the U.S. businesses under the eCommerce segment, profit on operating activities declined 7.2% to $136.3 million. As a result, the underlying net profit declined 5.8% to $100.1 million. But if you exclude the U.S. businesses, underlying net profit would have rose by 15.8%. I'll provide more details on our financials on the next few slides.
The Board has proposed a final dividend of $0.02 per share. This brings the total dividend for the year to $0.035 per share, same as last year. This represents a payout of 79% of our underlying net profit.
Next slide. Revenue for FY 2018/'19 rose 2.9% driven by growth on Post and Parcel and Property business segments. Profit on operating activities also rose in 3 of our business segments: Post and Parcel, Logistics and Property, respectively. However, they were offset by higher losses from the U.S. businesses as well as trade-related foreign exchange translation differences, which consequently led to a 7.2% decline in the group's profit on operating activities.
Share of associated companies and JV recorded a $7.1 million loss largely due to 4PX losses in the earlier part of the year. As announced, before we have ceased equity accounting for 4PX from the third quarter of the financial year. The group recorded an exceptional loss of $69.3 million largely due to the impairment of the U.S. businesses. We will share more details on this in a later slide. With the exceptional loss, net profit declined by 86% to $19 million. Excluding the impact of the exceptional and one-off items, underlying net profit declined 5.8% to $100.1 million for the full year.
On the next slide, operating expenses rose 3.7% driven by higher volume-related expenses, which rose 7.2%. Traffic-related expenses, which are largely for mail conveyances, rose to -- well, this is mainly due to higher terminal use. Further, outsourced services, which are largely incurred in the U.S. for freight purposes, rose significantly faster than revenue.
Labor and related expenses declined 2.8% due to cost management initiatives. Admin, selling-related and other expenses increased 1.3% due to higher property-related expenses from increased property activities as well as provision for ongoing contractual dispute within eCommerce customer in the U.S. Excluding volume-related expenses, operating expenses would have declined 1.5% for the full year.
The next slide shows -- provides an overview of the various segments contribution to the group's revenue and profit on operating activities. For group revenue, the Post and Parcels segment remains the largest contributor followed by the Logistics segment. Post and Parcel is also the largest contributor to profit on operating activities and earnings rose by 1% to $165.9 million. Property operating profit rose by 29.8% to $53.7 million. The Logistics segment continued its improvement as operating loss narrowed from $10.6 million to $2.5 million.
eCommerce segment losses widened year-on-year to $51.9 million due to the challenges in the U.S. businesses. In the others segment, we recorded unfavorable movements in trade-related foreign currency translation differences of about $3.6 million.
In the next chart, we show you the impact of the various business segments on the underlying net profit. Profit on operating activities for the Property segment grew $12.3 million due to rental income from the Singapore Post Centre retail mall. For Logistics, operating profit was up $8.1 million largely due to a reduction of losses at Quantium Solutions. Post and Parcel profit rose $1.6 million, while associates and JV declined largely due to 4PX losses recorded in the earlier part of the year. There was significant widening of the eCommerce segment losses, which widened by $32.3 million, due to the U.S. businesses. Consequently, underlying net profit declined 5.8% to $100.1 million.
In the next slide, we will talk a little bit more about the impairment of TradeGlobal and Jagged Peak. Further to the announcement in the Q3 quarterly results of the risk of impairment, the group has reviewed the carrying value of the U.S. businesses, which involved a review of historical performance and evaluation of the value-in-use for each of the businesses. Under financial reporting standards, the value-in-use computation has been adopted for the purpose of impairment testing. This excludes any cash flow expected to arise from future restructuring not yet committed or plans to improve or enhance the assets' performance.
The group has recorded a total impairment of $98.7 million to the carrying value of TradeGlobal and Jagged Peak comprising the balance $67.6 million of goodwill and intangible assets and the balance $31 million for property, plant and equipment. This means that the carrying value of the U.S. businesses had been substantially impaired, save for working capital that we believe is recoverable.
The next slide, we talk a little bit more about the exceptional items. In Q4, total exceptional losses amounted to $92.2 million, which comprised largely of the impairment for TradeGlobal and Jagged Peak of $98.7 million, as well as the provision for restructuring of overseas operations of $9.9 million. This was partially offset by fair value gain on investment properties of $12 million for SingPost Centre and gain on divestment of interest in ITL of about $6 million.
For the full year, total exceptional items include a gain on dilution in 4PX of $42.7 million and fair value loss on GD Express warrants of $15.5 million. Accordingly, the full year exceptional losses amounted to $69.3 million.
In the next slide, we give you a little bit more color on the Q4 financial statement. Revenue declined 2.1% largely due to Logistics and eCommerce segments. Profit on operating activities are lower at $14.9 million largely due to higher losses for the U.S. businesses. Share of profit of associated companies and JV was 0 compared to a loss of $6.2 million last year largely due to the depreciation of equity accounting for 4PX.
The group recorded an income tax credit of $2.5 million largely due to write-back of deferred tax liability of $5.7 million in relation to the impairment of intangible assets of the U.S. businesses. The corresponding period last year -- in the corresponding period last year, income tax expense was $10.9 million as that include additional provisioning for a foreign subsidiary. As a result of the exceptional items recorded this quarter, the group recorded net loss of $75.1 million in Q4. Excluding exceptional items, underlying net profit declined 6.1% to $14.5 million.
In the next slide, we show you the Q4 operating expenses, which rose 2.7% in Q4. Volume-related costs rose 2.4% largely due to higher outsourced expenses for the U.S. business. Labor and related expenses rose 3.6% as the group higher additional postmen and increased incentive payments during the quarter to improve service levels. Admin and selling-related and other expenses increased 5.1% largely due to higher property-related expenses from increased property activities.
The next slide shows you the segmental revenue and profit for the Q4. Operating revenue was lower in Q4 largely due to declines in Logistics and eCommerce segments, as mentioned earlier. For profit on operating activities, Post and Parcel segment profit declined 8.3% as the group incurred higher expenses to improve service quality levels. Logistics operating loss rose to $4.7 million as the segment incurred one-off cost of nearly $2 million during the quarter. In addition to that, last year earnings was lifted by some one-offs of around $1 million. So the string is -- of $3 million is actually due to one-offs. eCommerce losses widened to $18 million due largely to the U.S. business. The other segment expenses improved due to lower corporate overhead costs. In a later section, we will take a closer look at each of the segments. But first let me share some immediate measures we are putting in place to improve our Postal Service quality.
Okay. The next slide shows you one of some of these measures. The group has announced immediate measures to improve service quality, which includes hiring an additional 100 postmen and redeploying 35 mail-drop drivers to become full-time postmen. We will enhance postmen remuneration with incentives for successful deliveries of trackable items to the doorsteps. In addition, we've extend mail deliveries to last to weekday evenings and on Saturdays and have dedicated counters and staff at post office for parcel collection.
We will also focus on core mail delivery by reducing noncore mail businesses, such as ad-mail to improve service levels.
Let me now move on to the cash flow and balance sheet. For the full year ended 31st March 2019, operating cash flow before working capital changes was $186.8 million compared to $196.2 million last year. Working capital movement for the year was negative $3.3 million due to the timing of payables and receivables in respect of international postal settlements largely for eCommerce deliveries. After payment of income tax, net cash inflows from operating activities was $152.2 million for the year compared to $198.2 million last year.
Capital expenditure declined to $31.3 million compared to $62.1 million last year with the completion of SingPost retail mall redevelopment. Consequently, free cash flow amounted to $120.9 million.
We'll now move on to the financial indicators. Cash and cash equivalents was higher at $392.2 million as at 31st March 2019 due to cash generated for operations. Total borrowings rose to $290.9 million as the group switched from an intercompany loan for a foreign subsidiary to an external loan for better matching currency. The group was in a net cash position of $101.3 million as at 31st March 2019 compared to $70.1 million as at 31st March 2018. Underlying EBITDA to interest cover for the full year remains strong at 18.2x compared to 19.2x last year.
We'll now move on to the segmental results, and for this, I shall hand you over to Jason.
Thank you, Richard. So in the Post and Parcel segment, revenue rose 4.1% for the full year driven by strong international mail revenue growth of 9.3%, which is due to higher cross-border eCommerce-related deliveries. For Q4, revenue was stable as the growth in international mail was offset by the decline in domestic mail revenue, as a result, lower letter and advertisement mail volumes. Profit on operating activities rose 1% for the full year as the group benefited from the higher cross-border eCommerce deliveries as well as from operating synergies rising from the integration of the domestic Post and Parcel divisions.
For Q4, Post and Parcel profit on operating activities declined 8.3% due to higher expenses to improve service quality, which includes hiring of additional postmen, increasing incentive payments as well as reduced noncore mail items such as ad-mail.
In the Logistics segment, revenue declined 0.3% for the full year and 2.9% in Q4. Famous Holdings revenues rose with higher freight rates. However, this was offset by revenue decline at Quantium Solutions following an exit of unfavorable customer contracts as well as at Couriers Please, which was impacted by the depreciation of the Australian dollar against the Singapore dollar.
For the full year, loss on operating activities narrowed from $10.6 million to $2.5 million largely due to the reduction in losses at Quantium Solutions after exit of unfavorable contracts as well as successful implementation of cost rationalization.
For Q4, loss on operating activities widened to $4.7 million from $0.2 million last year. Famous contribution declined with a drop in overall trade activity and volumes. Profit for Couriers Please rose in Australian dollar terms but was impacted by the strengthening of the Singapore dollar as well as a onetime cost incurred for cost leadership program. In all, the Logistics segment incurred one-off costs of nearly $2 million during the quarter, which also includes relocation costs, staff redundancy and professional fees. In the corresponding quarter last year, Logistics segment earnings was lifted by some one-off items amounting to around $1 million.
In the eCommerce segment, revenue declined 0.3% for the full year and 7.7% in Q4 as the group continues to face pressures in the U.S. in the midst of intensifying competitive and cost pressures as well as an increase in customer bankruptcies in the industry. Loss on operating activities widened year-on-year to $51.9 million for the full year and $18.0 million in Q4.
Following a strategic review of the U.S. businesses, its prospects and additional investments required, the group decided to put the U.S. businesses up for sale and exit the U.S. market. The group believes its strength and competitive advantages are in Southeast Asia and Asia Pacific, which provides attractive growth opportunities. SingPost will make further announcements as appropriate on the exit.
Property segment revenue, which comprises commercial property rental and the self-storage business, rose 13.5% for the full year and 2.2% in Q4. This was due to rental income from the SingPost Centre retail mall, which commenced operations in October 2018 after a period of redevelopment. Profit on operating activities rose 29.8% for the full year and 1.7% for Q4 due to rental income from the SPC mall. Committed occupancy for the mall was 98.9% as at 31st March 2019 compared to 95.6% a year ago.
Let me now hand over back to Richard for the outlook.
Thank you, Jason. The Post and Parcel business is expected to benefit from the continued growth in global eCommerce activities. Although domestic letter mail volumes are expected to trend moderately downwards, the group is integrating its Postal and Parcel delivery capabilities in Singapore to achieve operational synergies and benefits.
The group will step up its investment to improve service quality in its home market in Singapore. While international mail has grown due to cross-border eCommerce deliveries, transhipment competition is intense and volumes will continue to come under pressure, especially with higher terminal dues.
Meanwhile, the Property business is expected to remain stable. The group has commenced a sale process for U.S. businesses under the eCommerce segment, and we will make further announcements as appropriate on the exit.
The group expects to continue to account for operating losses of the U.S. businesses until it completes its exit.
With that, I'll conclude my presentation.