U.S. Markets closed

Edited Transcript of S08.SI earnings conference call or presentation 2-Aug-19 2:00am GMT

Q1 2020 Singapore Post Ltd Earnings Presentation

Singapore Aug 29, 2019 (Thomson StreetEvents) -- Edited Transcript of Singapore Post Ltd earnings conference call or presentation Friday, August 2, 2019 at 2:00:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Loh Jiet Lim

Singapore Post Limited - VP of IR

* Tak Loi Lai

Singapore Post Limited - Group CFO

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Ladies and gentlemen, thank you for holding. We are now ready for the briefing. I shall now hand over to the management of SingPost to begin the briefing.

--------------------------------------------------------------------------------

Loh Jiet Lim, Singapore Post Limited - VP of IR [2]

--------------------------------------------------------------------------------

Good morning, everyone. Welcome to SingPost's Results Briefing for the First Quarter FY '19-'20. My name is Jason from Investor Relations. With me today is our Group CFO, Mr. Richard Lai; as well as our CEO of Postal Services in Singapore, Mr. Vincent Phang.

I will now hand over the session to Richard to bring you to our results.

--------------------------------------------------------------------------------

Tak Loi Lai, Singapore Post Limited - Group CFO [3]

--------------------------------------------------------------------------------

Thank you, Jason, and thank you, everyone, for joining us today. Allow me to go straight into the results that we have just announced earlier this morning. Revenue for Q1 FY '19-'20 rose marginally with higher international post and parcel revenue from cross-border eCommerce deliveries. Profit on operating activities declined 9.9% largely due to contribution -- lower contribution from domestic post and parcel. We will have more details on that in a later slide.

As announced before we have ceased equity accounting for 4PX and disposed our stake in Indo Trans Logistics. As such, share of associated companies and JV improved significantly to $0.3 million loss as opposed to $3.5 million loss last year. Last financial year, the group sold the GD Express warrants that it held and utilized the proceeds to increase its direct shareholding in GD Express. As such, we no longer have to recognize fair value losses or gains that may arise on the warrants. The absence of such exceptional losses led to a 37.2% increase in net profit attributable to equity holders. Excluding exceptional items, underlying net profit rose 3.9% to $25.6 million due to improved results from associated companies and JV.

Let's now move on to expenses. Operating expenses rose 2.5% driven by higher volume-related expenses, which rose 7.6%. Excluding volume-related expenses, operating expenses would have declined 5.1% on cost management initiatives. The growth in volume-related expenses reflect cost in relation to higher revenues at international post and parcel as well as the U.S. businesses.

Labor and related expenses rose 5.9% with additional postmen hired for the Singapore Post operations offset by lower labor expenses in the U.S. From 1st of April 2019, the group adopted SFRS 16 as required by accounting standards. This involves putting leases on to our balance sheet. Operating lease commitments are now recognized right-of-use assets as well as lease liability on the balance sheet. There's a reduction of rental costs under admin and others, an increase in depreciation costs under D&A as well as increase in finance expenses. Largely as a result of the above, admin, selling and other expenses declined 25.4% to $30.4 million. Depreciation and amortization expenses rose 20% to $17.2 million, and finance expenses rose to $3.6 million from $2.4 million in Q1 last year.

Next slide provides an overview of the various segment contribution to group revenue and profit on operating activities. The Post and Parcel segment remained the largest contributor to group revenue followed by the Logistics segment. For profit on operating activities, Post and Parcel is also the largest contributor product followed by the Property segment. The Logistics segment remains in a small operating loss position.

As previously announced, the Board has decided to exit the U.S. businesses, and we are in the midst of a sale process. We will provide more detail on the performance of each of the segments in the next few slides. Under the Others segment, costs rose to $6.4 million from $5.5 million in Q1 last year largely due to higher corporate costs related -- relating to public communications.

Let's now move on to cash flows and financial indicators. For the quarter ended 30th June 2019, operating cash flow before working capital changes was $51.3 million, largely stable compared to $52.2 million last year. Working capital movement for the quarter was negative $19.1 million due largely to timing of receivables in respect to cross-border eCommerce deliveries, which are experiencing strong growth in China.

In the same period last year, there was a positive $20.4 million working capital movement due largely to favorable timing for payables in respect of international postal settlements. As a result, net cash inflow from operating activities was $31.1 million for the quarter compared to $71.3 million in Q1 last year. Capital expenditure declined to $4.1 million compared to $9.2 million last year as certain CapEx items were deferred to later quarters in FY '19-'20. Consequently, free cash flow in Q1 amounted to $27 million.

We now move to the financial indicators. Cash and cash equivalents was higher at $412.1 million as at 30th June 2019 due to cash generated from operations. Total borrowings was stable at $290.7 million. The group's net cash position improved to $121.4 million as at 30th June 2019 compared to $101.3 million as at 31st March 2019.

EBITDA rose to $52.3 million. This is substantially due to the SFRS 16 adoption. And EBITDA to interest cover improved to 20.6x compared to 18.6x last year. However, if you adjust out the impact of SFRS 16, you will find that the EBITDA to interest expense is more like something 17.5x.

Let me move on to dividends. The Board has declared an interim dividend of $0.005 per share same as last year. The book closure date is on 20th August, and payment is on 30th August. Our dividend policy remains unchanged based on a payout ratio ranging from 60% to 80% of underlying net profit for each financial year.

We will now move on to the segmental results. I shall now hand you over to Jason.

--------------------------------------------------------------------------------

Loh Jiet Lim, Singapore Post Limited - VP of IR [4]

--------------------------------------------------------------------------------

Thanks, Richard. In the Post and Parcel segment, revenue rose marginally as international revenue rose 5.2% on the back of higher cross-border eCommerce-related deliveries. This was partially offset by a 6.7% decline in domestic due to continued letter mail decline as well as a suspension of ad hoc admail volumes in order to improve service quality. Profit on operating activities declined 8.9% with lower earnings from domestic as the growth from eCommerce deliveries was insufficient to offset the decline from letter mails and admails. In addition, costs rose with hiring of additional postmen and enhancement of their remuneration.

In the Logistics segment, revenue was lower by 2.2%. Freight forwarding revenue rose 3.3% with higher volumes at the Rotterdam operations. However, eCommerce Logistics revenue declined 7.4% as we exited certain customer contracts at Quantium Solutions as well as due to the depreciation of the A dollar against the Sing dollar for Couriers Please. Without the depreciation of the A dollar, Logistics segment revenue would have been stable compared to Q1 last year.

Loss on operating activities widened to $1.8 million. Freight forwarding profit on operating activities remained stable despite the global down -- slowdown in trade activities. eCommerce Logistics losses widened due to compensation payments received from a customer last year, which has since exited. Excluding this, losses would have been largely stable year-on-year.

Property revenue, which comprises commercial property rental and the self-storage business, remained largely stable at $29.8 million. The marginal decline in revenue was due to preagreed incentives on an office anchor tenant's option to extend its lease. Profit on operating activities declined 2.3% due to higher depreciation from improvement works for the self-storage business.

In the U.S. business segment, revenue rose 7.9% due to higher freight revenues. However, outsourced expenses to third-party vendors for deliveries rose disproportionately and contributed negatively to the business. Losses on operating activities narrowed year-on-year to $6.9 million from $8.8 million in Q1 last year. This was due to the absence of depreciation and amortization expenses as property, plant and equipment and intangible assets had been written down to 0 since the close of the previous financial year.

Let me now hand over back to Richard for the outlook.

--------------------------------------------------------------------------------

Tak Loi Lai, Singapore Post Limited - Group CFO [5]

--------------------------------------------------------------------------------

All right. Thank you, Jason. The eCommerce volume is expected to continue to grow strongly in particular in Asia Pacific. SingPost remains well positioned to benefit over the long term. In Singapore, while eCommerce-related deliveries are expected to grow, the full benefits are being mitigated by a decline in letter mail and advertisement mail volumes. The group will continue to drive operational synergies and productivity gains with the integration of its post and parcel delivery capabilities. While international revenue has grown with increased cross-border eCommerce deliveries, transshipment competition is intense with volumes and margins continuing to come under pressure especially with higher terminal dues.

The group has stepped up investment to improve service quality and is also reviewing ways to improve the design of our postal system to drive long-term benefits in a parcel-centric environment. The Property segment is expected to remain largely stable and a significant contributor to the group's operating profit for the year. As announced earlier, the group has decided to exit the U.S. businesses, TradeGlobal and Jagged Peak, and is in the midst of a sale process. The group will make further announcements as appropriate.

With that, I conclude my presentation.