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Edited Transcript of S08.SI earnings conference call or presentation 4-Nov-19 1:00am GMT

Q2 2020 Singapore Post Ltd Earnings Presentation

Singapore Nov 19, 2019 (Thomson StreetEvents) -- Edited Transcript of Singapore Post Ltd earnings conference call or presentation Monday, November 4, 2019 at 1:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Heng Wee Phang

Singapore Post Limited - CEO of Postal Services and CEO of Singapore

* 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 should 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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Hi. Good morning, everyone. Welcome to SingPost's results briefing for the second quarter and half-year of FY '19/'20. My name is Jason from Investor Relations.

With me today is our Group CEO, Mr. Paul Coutts; our Group CFO, Mr. Richard Lai; and the CEO of Postal Services in Singapore, Mr. Vincent Phang.

Before I hand over the session to Richard to bring you to our results, I would like to share an update on the group income statement. With Jagged Peak and TradeGlobal having filed for relief under Chapter 11 of the U.S. Bankruptcy Code, the group deconsolidated their financials with effect from the month of September. The group income statement is now presented as continuing operations, which exclude the U.S. subsidiaries. Losses from the U.S. subsidiaries for the period prior to deconsolidation are presented as a single line item called discontinued operations. Moving forward, the group will no longer recognize profit or loss from U.S. subsidiaries.

I'll now hand over to Richard. Richard, please.

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

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Thank you, Jason, and thank you, everyone, for joining us today.

Revenue for Q2 FY '19/'20 rose 2%, largely led by international post and parcel and offset by lower domestic post and parcel and freight forwarding. Profit on our operating activities declined 22.2%, largely due to lower domestic volumes as well as the slowdown in the freight forwarding sector. Share of associated companies and JV was a $0.3 million profit as opposed to $3.6 million loss last year as we ceased equity accounting for 4PX and disposed of our shares in Indo Trans Logistics.

Last financial year, the group also sold the GD Express warrants that they held and used the proceeds to increase its direct shareholding in GD Express. So this has also helped to contribute to the $0.3 million profit in share of associated companies and JV. As such, we no longer have to recognize any fair value losses or gains that may arise from the warrants. Loss from discontinuing operations were lower by 55.8% due largely to the absence of depreciation and amortization expenses as assets of the U.S. subsidiaries has been impaired down to 0 since the close of the previous financial year. Net profit attributable to shareholders rose 10.3% with the absence of the exceptional loss.

Excluding exceptional items, underlying net profit declined by 4.6% to $26.8 million, and this is mainly due to improved results from associated companies and JV partly offset by the post and parcel and freight forwarding decline.

Let me now move on to expenses. Operating expenses rose 6%, largely due to higher volume-related expenses. The growth in volume-related expenses reflects costs to support the higher revenues at international post and parcel. Labor and related expenses rose 5.2% with additional postmen hired for the Singapore postal operations as well as higher remuneration for the postmen. From 1st April 2019, the group adopted SFRS International 16 as required by accounting standards. This involves putting leases onto our balance sheet. Operating lease commitments are now recognized as right-of-use assets as well as lease liabilities on the balance sheet.

There is a reduction of rental costs under admin and others and increase in depreciation cost under depreciation and amortization as well as an increase in finance expenses. Largely as a result of the above, admin, selling and other expenses declined 18.8% to $28.3 million. Depreciation and amortization expenses rose 79.1% to $17 million, and finance expenses rose to $3.2 million from $1.9 million in Q2 last year. There is a graph in the slide, which shows you that the net impact from this adjustment is actually just a negative 0.5, which will be neutral as the lease expires.

In the next slide, we provide an overview of the various segment contribution to the group revenue and the profit on operating activities. The Post & Parcel segment remains the largest contributor to group revenue, followed by the Logistics segment. For profit on operating activities, however, Post & Parcel is the largest contributor, followed by the Property segment. The Logistics segment remains in a small operating loss position. We will provide more details on the performance of each segment in the next few slides. Under the Others segment, expenses rose to $8 million from $5.6 million in Q2 last year due to absence of one-off benefit items recorded in the corresponding period last year as well as lower favorable trade-related ForeignEx currency translation differences.

Let me now move on to the cash flow and financial indicators. For the half year ended 30th September 2019, operating cash flow before working capital changes was $104.8 million, largely stable compared to the $105.1 million last year. Working capital movement for the first half was negative $47.7 million due largely to negative movements for payables with respect to international postal settlement as well as higher receivables in respect of cross-border e-commerce deliveries.

In the first half of last year, there was a larger unfavorable movement for international postal settlement. As such, net cash inflow from operating activities improved to $38.7 million as compared to $11.8 million in the same half year last year. Free cash flow in the first half this year improved with higher cash provided by operating activities as well as lower capital expenditure.

Now moving on to financial indicators. Cash and cash equivalents was lower at $325.4 million compared to March 2019 due to payments of dividends, outpayments for international postal terminal dues as well as net repayment of a bank term loan. The cash position had improved as compared to $285.2 million as at September last year. EBITDA rose to $105.2 million for the first half. EBITDA to finance expenses stand at 14.6x compared to 19x last year due to adoption of SFRS 16 leases. However, if we adjust it to -- that to exclude the impact of SFRS 16, EBITDA to finance expense would be about 17.4x for the first half, which still remains at a healthy level.

Moving on to the next slide. The Board has declared an interim dividend of $0.005 per share, same as last year. The book closure date is on 19 November and payment date is on 29 November. Our dividend policy remains unchanged based on the payout ratio ranging from 60% to 80% of underlying net profit for each financial year.

So we will now move on to the segmental results, which I shall now hand you over to Jason.

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

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Thanks, Richard.

In the Post & Parcel segment, revenue rose 5.3% for Q2 and 2.9% for H1. International revenue rose on the back of higher cross-border e-commerce-related deliveries. This was partially offset by a decline in domestic revenue where growth from e-commerce-related deliveries was insufficient to offset an accelerated decline in business letter volumes plus a reduction in admail volumes.

Profit on operating activities declined for Q2 and H1. The lower volumes were exacerbated by higher costs incurred for initiatives to improve service quality standards such as hiring of additional postmen and enhancement of their remuneration.

In the Logistics segment, revenue was lower due largely to the depreciation of the A dollar against the Sing dollar for CouriersPlease, our parcel delivery service in Australia. Without the depreciation of the A dollar, Logistics segment revenue would have been stable for Q2 and H1.

Quantium Solutions showed improved operational momentum in Q2 with addition of new customers, which helped offset the decline in freight forwarding revenue from a slowdown in global trade activities. Losses on operating activities stood at $0.9 million for Q2 and $2.6 million for H1 as Quantium Solutions benefited from improved operating leverage from higher revenue. However, this was offset by onboarding costs for e-commerce customers in Asia Pacific as well as lower profits from the freight forwarding business due to lower volumes.

In the Property segment, revenue which comprises commercial property rental and the self-storage business, remained largely stable for Q2 and H1 with SingPost Centre retail mall and office remaining at close to full occupancy.

Profit on operating activities rose 3.1% to $13.8 million in Q2 with higher contribution from the SPC retail mall. For H1, profit on operating activities was stable at $26.6 million.

Let me now hand over to Vincent to share some of the quarter highlights for the quarter. Vincent?

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Heng Wee Phang, Singapore Post Limited - CEO of Postal Services and CEO of Singapore [5]

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Thanks, Jason. Good morning, everybody. I'd like to share some of the initiatives we have taken to address our longer-term structural challenges.

So as announced last week, SingPost will be introducing new package categories and adjusted postal products to meet e-commerce demand from the 2nd of December 2019. This new package, basic package and tracked package categories, are designed to better meet the needs of e-commerce deliveries in Singapore. Among the numerous feedback received, tracking and letterbox deliveries were preferred compared to waiting at home for doorstep deliveries. The new services will be delivered directly to letterboxes for greater convenience, and a notification will be sent to the recipients when the items are in their letterboxes. And we believe this will be a very competitive product against the business provided by courier companies, which really is a doorstep delivery.

Separately, basic mail and registered service will be limited to letters and printed papers up to 500 grams in Singapore. These services have been used to send packages which inadvertently have put a considerable strain on our operations. This move will realign the service's original intent of sending letters and help streamline our processes and also improve efficiency.

Lastly, airmail rates for letters sent overseas and the registered service for international fee will be revised upwards to mitigate increasing postal settlement rates. Robust product streamlining is only the start of our comprehensive plans to boost the postal service in Singapore.

I also would like to take a moment to share our vision on the future of post where we look to transform Singapore's postal landscape with smart shared letterboxes.

Imagine a postal ecosystem with the ability to track every single mail item, a faster and more accurate postal sortation system and an autonomous authentication and dispensing of letters and packages. Each smart letterbox is equipped with automated sorting and storage and an automated in-feed module for letters and packets to improve efficiencies. Recipients are also able to collect their parcels and mail at their convenience as notifications will be sent when items arrive. Together, these features will significantly reduce our postmen's workload as we transition most of the products from the doorstep to the letterbox and also minimize missed deliveries. Importantly, this new infrastructure will significantly improve the overall customer experience. We are currently in discussions with various authorities on this.

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

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Tak Loi Lai, Singapore Post Limited - Group CFO [6]

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Thank you, Vincent.

In Singapore, domestic letter mail volumes continue to decline. E-commerce-related packet and parcel volumes continue to grow. This is reflected in lower blended margins. The group's cost leadership program continues to help mitigate the impact. An increase in international letter mail rate and a streamlining of domestic postal products will come into effect from 2nd December 2019. International mail continues to grow. The Universal Postal Union member countries have reached an agreement on postal remuneration rates, which will have accelerate rate increases for the delivery of international bulky letters and small packets. The Property segment is expected to remain largely stable and a significant contributor to group operating profit for the year.

So with that, I'll conclude my presentation.