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Edited Transcript of S08.SI earnings conference call or presentation 1-Feb-19 2:00am GMT

Q3 2019 Singapore Post Ltd Earnings Call

Singapore Feb 2, 2019 (Thomson StreetEvents) -- Edited Transcript of Singapore Post Ltd earnings conference call or presentation Friday, February 1, 2019 at 2:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Loh Jiet Lim

Singapore Post Limited - VP of IR

* Tak Loi Lai

Singapore Post Limited - Group CFO

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Presentation

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Operator [1]

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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.

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

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Good morning, everyone. Welcome to SingPost's Results Briefing for the Third Quarter and 9 Months 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.

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

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

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Good morning, and welcome to our results briefing. Let me first share an overview of our Q3 results. We recorded group revenue growth over the peak season, as group revenue rose 7.6% to $441.4 million on strong volumes. However, due to the intensifying competition and rising customer bankruptcies in the U.S., profit on operating activities declined 8.5% to $42.2 million.

Excluding the U.S. businesses, profit on operating activities would have been -- rose 9.8%. Net profit rose 15.6% to $50.2 million, due largely to an exceptional gain on dilution of our stake in 4PX. I will provide more details on our financials over the next few slides. The board has declared an interim Q3 dividend of $0.005 per share, same as last year. This brings total dividends for the year to $0.015.

Revenue increased 7.6%, driven by growth across all of our core business segments. Profit on operating activities also rose in 3 of our business segments: Post and Parcels, Logistics and Property, respectively. However, they are largely -- these were offset by higher losses in the U.S., which led to 8.5% decline in group profit on operating activities.

In Q3, we have ceased equity accounting for 4PX and ITL. Consequently, the share of associated companies and JV was $17,000. As previously announced, 4PX ceased to be an associated company after the issuance of additional shares to China, which diluted the group's shareholding down to 19.75%. We have entered into a sale agreement for our shares in ITL. And therefore, it has been reclassified as an asset held for sale.

The group recorded an exceptional gain of $31.8 million in Q3, largely due to the gain on dilution interest in 4PX, partly offset by fair value loss on warrants from GDEX.

Income tax expense for Q3 was $9.4 million as compared to $2.9 million last year. The lower tax expense last year was due to a one-off adjustment of deferred tax of $6.9 million arising from a reduction in the U.S. corporate tax rate.

Net profit attributable to equity holders rose 15.6%, largely due to exceptional gains.

Excluding exceptional items and one-off tax adjustment, underlying net profit declined 7.5% due to higher losses from the U.S. businesses.

Next slide. Operating expenses rose 8.8% in Q3, due to higher volume-related expenses with the increase in volumes handled. The increased volume in increased disputes, we have taken prudential action by making provision for some of these disputes in the U.S., leading to an increase in admin expenses.

Labor-related expenses declined 3.1%, as our productivity enhancement, and cost management plan led to lower contracted labor services as well lower staff costs.

Moving on, let me share some operating highlights for the quarter. We are making good progress in winning in our home market and achieved strong volumes in Q3. Parcel sorting volumes at the Logistics Hub rose 15% year-on-year to 23,900 parcels daily. Our highest volume achieved in a single day was 47,000 parcels compared to 33,000 last year.

In November, SingPost unveiled a new proprietary logistics software, Last Mile Platform, or LaMP, for short. It is a one of a kind technology that consolidates various last-mile delivery services, such as courier services, parcel locker, brick-and-mortar collection points on to a single platform across Southeast Asia.

As mentioned in an earlier press release, we are in advanced talks with an Indonesian last mile operator with 1,500 collection points across 58 cities. SingPost recognized a gain on dilution of our interest in 4PX, which amounted to $28.2 million, excluding noncontrolling interest.

[China's further] investment in 4PX will allow deeper business integration within 4PX, Alibaba Group and SingPost for cross-border eCommerce volumes.

The next chart shows the impact of the various business segments on underlying net profit. Profit on operating activities from the Post and Parcel segment rose $4.3 million, while the Property segment earnings grew $2.1 million. Logistics continued its turnaround, and profit was up $0.7 million. Our eCommerce segment losses widened by $8.9 million, largely due to the U.S. Consequently, underlying net profit declined 7.5%.

Let me now move on to the cash flow and balance sheet. For the 9 months ended 31st December, 2018, operating cash flow before working capital charges rose 4.5% to $159 million from $152.2 million last year. Working capital movement was negative $27 million for the period due to the timing of receivables in respect of international eCommerce deliveries. As a result, net cash inflow from operating activities for the 9 months ended 31st December, 2018, declined to $99.3 million from $146.5 million last year.

Capital expenditures declined to $25.4 million compared to $52.9 million last year, with the completion of the SingPost Centre retail mall redevelopment. Consequently, free cash flow amounted to $73.9 million.

We now move to the financial indicators. Cash and cash equivalents stood at $345.9 million at 31st December, 2018. Total borrowings rose to $293.2 million, as the group switched from an intercompany loan from a foreign subsidiary to an external loan for better matching of currency. The group was in a net cash position of $52.7 million as at 31st December, 2018, compared to $70.1 million as at 31st March, 2018. This was largely due to higher working capital requirements during the period.

EBITDA for the 9-month period rose to $180.5 million, due to higher profit on operating activities as well as exceptional items. Notwithstanding the increased debt, interest coverage ratio stands at 25.2x compared to 20.3x last year.

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

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

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Thank you, Richard. The next slide provides an overview of the various segments' contribution to group revenue and profit on operating activities.

For operating revenue, the Post and Parcel segment remains the largest contributor, followed by the Logistics and eCommerce segments. Post and Parcel is also the largest contributor to operating profit at $47.6 million, followed by the Property segment at $13.9 million.

The Logistics segment continued its improvement, reporting operating profit of $1.8 million for Q3. eCommerce segment losses widened to $13.4 million, due to challenges in the U.S. businesses. In the other segment, we recorded unfavorable movements in trade-related foreign currency translation differences of around $2.9 million.

Next, we will take a closer look at the segments. In the Post and Parcel segment, revenue rose 9% in Q3, driven by both domestic and international eCommerce deliveries over the peak season. Domestic mail revenue rose 1.6%, as increased eCommerce deliveries on the domestic postal network helped offset decline in traditional letter mails.

For international mail, revenue rose 16.3%, lifted by cross-border volumes from the Alibaba Group, through 4PX, for the Double Eleven event in November.

Profit on operating activities rose 10% in Q3. Domestic margins improved as the group reaps operating synergies from the ongoing integration of our post and parcel divisions. International mail contributed to earnings growth on the back of higher volumes over the peak season. For 9 months, revenue and profit on operating activities rose 5.6% and 3.7%, respectively.

In the Logistics segment, revenue rose 3.6% in Q3, driven by the freight-forwarding business under Famous Holdings. At Quantium Solutions, there is an ongoing review of unfavorable customer contracts, and revenue declined marginally with the exit of some unprofitable customers.

Profit on operating activities rose 67.4% in Q3 to $1.8 million, largely due to a reduction in losses at Quantium Solutions, which was successful in improving profitability of its customers. For 9 months, revenue rose 0.6%, while operating profit was $2.2 million, a turnaround from a loss position last year.

In the eCommerce segment, revenue rose 8.7% in Q3, as volumes rose over the peak season in the U.S. Operating losses rose year-on-year to $13.4 million in Q3, largely due to the U.S. businesses. Competitive pressures have intensified in the U.S., and the industry has seen an increase in bankruptcies. While the U.S. businesses recorded higher revenue during the quarter, cost also rose significantly to support these businesses, including fright and outsourced services. This resulted in compressed margins and a loss during the critical peak season. For the 9-month period, eCommerce segment revenue rose 2.1%, while operating loss widened to $33.9 million.

The Property segment comprises commercial property rental and the self-storage business. In Q3, revenue rose 4%, and profit on operating activities rose 18.2%, respectively, due to rental income from the SPC retail mall, which commenced operations in October 2017 after a period of redevelopment. Committed occupancy for the mall was 98.5% as at 31 December 2018 compared to 85.9% a year ago. For the 9-month period, revenue rose 17.9%, while profit on operating activities rose 42.9%.

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

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

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Thank you, Jason. I think all of you would -- probably have read Paragraph 10 of the exchange announcement. So I won't go into it again, but it's sufficient to say that while the group has a lot of potential for further growth, especially in its Post and Parcel business and its Property side, the eCommerce business in U.S. continued to post a significant challenge. So we are actually taking a very close look at the business, and we will probably be able to comment more about it in the next quarter. Thank you.

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Loh Jiet Lim, Singapore Post Limited - VP of IR [6]

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With that, we conclude our presentation.