SINGAPORE - Singapore Post (SingPost) aims to complete a strategic review of the group&rsquo s business lines by March 2024 and has retained BofA Securities as its exclusive financial adviser to oversee the process.

 

In response to queries from The Straits Times, a SingPost spokesman said on Tuesday that the company intends to complete the strategic review within the current financial year ending March 31, 2024.

 

SingPost revealed that it is embarking on a strategic review of its operations when it announced its results for the previous financial year in May.

 

At that time, the group&rsquo s post and parcel unit had reported its first-ever annual loss in the financial year ending March 31.

 

There had been a sharp drop in domestic letter volumes since the Covid-19 pandemic, and the downward trend was expected to continue well into the future, SingPost said.

 

On the flip side, the group&rsquo s Australian and international divisions had grown significantly to account for 86 per cent of SingPost&rsquo s overall revenue.

 

This shift in the revenue mix prompted SingPost&rsquo s management to review its business segments to see if they still fit into the group&rsquo s goal of becoming a global logistics player, and not just a Singapore-only postal services company.

 

News of the re-evaluation had resulted in some speculation over the future of SingPost&rsquo s ailing mail delivery business in the wake of the review.

 

On July 5, however, the government said it would consider allowing SingPost to raise postage rates to &ldquo better reflect the cost of the letter mail business&rdquo .

 

The group said subsequently that it would work with the Infocomm Media Development Authority to review its costs and operating model, as well as work &ldquo towards a framework for long-term sustainability and commercial viability of the domestic postal service&rdquo .

 

Since then, SingPost shares have climbed almost 7.7 per cent to close at 49 cents on Tuesday, their highest levels in nearly eight weeks.

 

Meanwhile, the national postal service provider said in a statement on Monday that the review would focus on transitioning the group into a logistics business in due course.

 

As part of this process, it would identify potential businesses or assets that are non-core or those that are not expected to earn a return above their cost of capital.

 

This could lead to possible divestments and capital would be recycled to support further investments in the logistics operations, the group said.

 

The review would also look at how the group could optimise its balance sheet, enhance shareholder returns, and ensure that the group&rsquo s structure would allow its underlying businesses to be &ldquo appropriately valued&rdquo .

 

SINGAPORE Post : S08 +2.08% (SingPost) announced on Monday (Jul 17) that it has appointed BofA Securities as its exclusive financial adviser for its strategic review.

 

On May 11, SingPost said it was evaluating the commercial sustainability of its domestic postal business as part of a strategic review of its portfolio. This came after the group posted a 28 per cent drop in earnings for the second half ended March 2023.

 

In its latest statement, the national postal service provider said the review will focus on transitioning the group to a logistics business over time. It will identify potential businesses or assets which are &ldquo non-core or which are not expected to earn a return above their cost of capital&rdquo .

 

&ldquo This could lead to possible divestments and capital recycling to support further investments in logistics,&rdquo the group said.

 

The review will also look at how the group can optimise its balance sheet and ensure the structure of the group allows its underlying businesses to be &ldquo appropriately valued&rdquo , while creating &ldquo optionality&rdquo for the future of these businesses.

 

&ldquo There is no assurance that SingPost will implement any of the options identified through the strategic review,&rdquo the group added.

 

On Jul 5, the government said it will consider allowing SingPost to introduce postage rate adjustments to &ldquo better reflect the cost of letter mail business&rdquo following a sharp decline in domestic letter volumes since the Covid-19 pandemic.

 

SingPost&rsquo s shares surged to a seven-week high the next day, and the group later announced it would work with the Infocomm Media Development Authority (IMDA) to review its costs and operating model.

 

It also said it intends to work with IMDA &ldquo towards a framework for long-term sustainability and commercial viability of the domestic postal service&rdquo .

 

SingPost chairman Simon Israel expects the decline in the group&rsquo s postal business to continue in the 2023/2024 fiscal year, he said in a message to shareholders in the company&rsquo s annual report released in June. He noted that the postal segment decline was a &ldquo structural issue&rdquo requiring a &ldquo structural solution&rdquo .

 

The company had highlighted the need for transformation years ago as its postal business faced disruption from digital substitution, further accelerated by the Covid-19 pandemic.

 

UOB Kay Hian is keeping its &ldquo hold&rdquo recommendation on Singapore Post (SingPost) S08 0.00% with an unchanged target price of 46 cents.

 

This comes on the back of a recent parliamentary hearing in early-July, whereby the Minister of State and Communications mentioned that the government would consider allowing SingPost to introduce postage rate adjustments in response to declining domestic letter & mail volumes.

 

Excluding a small 1%-3% increase in January this year, postage rates have been kept constant since 2014. This announcement was made after the group initiated a strategic review of its domestic postal business amid a global secular decline in traditional letter & mail volumes coupled with its post and parcel segment posting its first ever annual operating loss of $15.9 million in FY2023 ended March.

 

&ldquo As discussions are still ongoing between Singapore&rsquo s postal regulator Infocomm Media Development Authority (IMDA) and SingPost, we opine that the postal rate adjustments would likely occur in 3QFY2024/4QFY2024,&rdquo says analyst Llelleythan Tan in his July 11 report.

 

Tan adds that this cooperation between IMDA and SPOST was in line with his earlier expectations as he opined that the recent 1%-3% postal rate increase in January was insufficient to cover elevated operating costs, driven by inflation.

 

&ldquo With expected postal rate adjustments, we now reckon that the domestic postal & parcel (DPP) segment is nearing a bottom. Based on our FY2024 estimates, assuming constant delivery volumes, we estimate that SingPost would have to raise basic and tracked postal rates by 1-2 cents (3-5%) and 5-6 cents (2-3%) respectively to break even,&rdquo says Tan, who also views that the additional revenue from the hikes would likely flow down to the bottom line, given no incremental increase in operating costs.

 

The analyst estimates a $12-15 million operating loss for DPP in FY2024.

 

Meanwhile, the proposed postal rate adjustments follow a global industry trend whereby national postal carriers have done multiple basic postal rate hikes to combat declining volumes. Some examples include the UK&rsquo s Royal Mail (about 30% increase in two years), the United States Postal Service (about 32% increase since 2019, 10% increase in the last six months) and the NZ Post (about 30% increase in 2023).

 

Although postal rate hikes may bring in additional revenue assuming constant volumes, this may instead hasten mailing volume decline as mail users cut down on mailing costs. As postal rates are regulated by the government, Tan reckons that the group may not be able to increase basic postal rates instantly by about 30% in line with global peers but instead implement gradual 5%-8% rate increases, balancing commercial sustainability of the group while fulfilling its national obligations of providing essential domestic postal services.

 

&ldquo Assuming postal rate adjustments are insufficient, we expect changes to service standards as the next step to reduce operating costs,&rdquo says Tan, who also believes that SingPost may consolidate its postal branches and multiple sorting centres in the near-medium term to achieve greater economies of scale and lower overhead costs amid inflationary cost push.

 

Also, assuming relaxation of service standards and regulatory approval, Tan opines that the group may outsource the delivery of letter & mail to third-party logistical companies while it solely operates the sorting segment, leading to better margins for the DPP segment.

 

If all else fails, a nationalisation of SingPost&rsquo s letter & mail business is possible to ensure continued postal services in Singapore.

 

&ldquo In our view, in such a case, SingPost may spin off the letter & mail business into a public governmental entity while the government would likely contract SingPost to operate the business via a cost-plus model, due to the complexity of operating a global postal company and lack of suitable alternatives,&rdquo says Tan.

 

However, given that the Singapore government only fully liberalised the postal market in 2007, a nationalisation of SingPost&rsquo s letter & mail would likely be a last resort without first exhausting all available options as mentioned above, making it a long and drawn-out process.

 

Furthermore, SingPost utilises the same postal network for its domestic ecommerce segment, a segment that it believes in long-term, making it unlikely that the group would divest its letter & mail postal business and infrastructure.

 

SHARES of Singapore Post (SingPost) : S08 +5.49% reached a seven-week high on Thursday (Jul 6) after the Singapore government said it would consider allowing the national postal service provider to adjust its postage rates to &ldquo better reflect the cost of letter mail business&rdquo .

 

The counter rose as much as 7.7 per cent or S$0.035 to reach a high of $0.49 in early morning trade. The last time the counter closed near this level was on May 15.

 

As at the midday break, SingPost&rsquo s shares were up 6.6 per cent or S$0.03 to S$0.485, with 7 million shares changing hands amid heavy trading.

 

The company later announced it would work with the Infocomm Media Development Authority (IMDA) to review its costs and operating model.

 

This includes the optimisation of SingPost&rsquo s post office network, and seeking the authority&rsquo s approval for additional postage rate adjustments to &ldquo better reflect the true cost of the letter mail business&rdquo .

 

It also intends to work with IMDA &ldquo towards a framework for long-term sustainability and commercial viability of the domestic postal service&rdquo .

Citing rapid digitsalisation and structural decline in mail volume, SingPost noted that the average consumer sends less than one letter per month.

 

By collaborating with IMDA on its review, SingPost said it aims to enhance efficiency and effectiveness while maintaining commercial viability for it to &ldquo continue delivering quality postal services to the community&rdquo .

 

&ldquo Through this structural review, SingPost seeks to balance the interests of our stakeholders as the public postal licensee and ensure its commercial viability&rdquo , said group chief executive Vincent Phang.

 

Potential postage rate adjustments would have to be sufficient enough to allow SingPost&rsquo s business model to remain viable without needing direct government funding, said Minister of State for Communications and Information Tan Kiat How in Parliament on Wednesday.

 

Tan was responding to a question on the viability of SingPost&rsquo s post and parcel business and whether measures are being taken to ensure the continuity of these services.

 

On May 11, SingPost said it was evaluating the commercial sustainability of its domestic postal business as part of a strategic review of its portfolio.

 

The move comes after the group delivered a 28 per cent drop in earnings for the second half ended 2023. For the full year, net profit was down 70.3 per cent despite record revenue.

 

THE government will consider allowing Singapore Post (SingPost) to introduce postage rate adjustments to &ldquo better reflect the cost of letter mail business&rdquo following a sharp decline in domestic letter volumes since the Covid-19 pandemic.

 

Minister of State for Communications and Information Tan Kiat How, announcing this in Parliament on Wednesday (Jul 5), said: &ldquo Domestic postage rates have largely been held constant since 2014, apart from a small increase at the start of this year.

 

&ldquo The upcoming adjustments will have to be of a sufficient degree to allow SingPost&rsquo s business model to remain viable, without requiring direct government funding.&rdquo

 

These adjustments are part of a review that the Infocomm Media Development Authority (IMDA), the postal regulator, will conduct with SingPost the review will look into its costs and operations, including optimising and automating post office services for greater cost effectiveness.

 

Tan was responding to a question on the viability of SingPost&rsquo s post and parcel business, and whether measures are being taken to ensure a continuity of these services.

 

In May, SingPost reported a 70.3 per cent plunge in net profit for FY2023 to S$24.7 million, despite posting record revenue. Its group chief executive Vincent Phang said then that the mainboard-listed company is conducting a strategic review of the commercial sustainability of its domestic postal business.

 

Tan told the House that SingPost, as a listed company, must maintain a viable business model while fulfilling its universal service obligations as a public postal licensee.

 

However, the speed and scale of digitalisation since the pandemic has led to a sharp decline in domestic letter volumes to just 260 million letters in financial year 2022, down from 490 million in FY2015, Tan noted.

 

Apart from individuals opting for paperless communications, most government agencies have also digitalised and are communicating with citizens through online channels, he said. Businesses now account for more than 80 per cent of mail users, and an average consumer sends fewer than one letter per month.

 

&ldquo With this decline, it will be challenging for SingPost to continue running a viable business with its current operating model, and at the current postage rates,&rdquo said Tan.

 

Under the review, IMDA will also examine the current postal service obligations to ensure they remain relevant in today&rsquo s highly digitalised context, particularly with the range of alternative electronic communication channels available.

 

Tan added that the government will also work closely with SingPost on a &ldquo fundamental review&rdquo of the future of Singapore&rsquo s postal service, recognising the &ldquo larger shifts&rdquo in the delivery ecosystem and changing needs here, including the rise of logistics and e-commerce players.