SingPost warns delivering profits getting harder

Profits may be up for SingPost by a whopping 20.6 percent, but its deputy group CEO admits the company’s outlook is nowhere as pretty.

SingPost recently posted its Q3 results for 2009, showing an increase of net profit to S$44.1 million. The group’s results were largely favourable, with group revenue growing by 12.7% to S$139.6 million in the third quarter, boosted by the inclusion of revenue from Quantium Solutions (formerly known as G3 Worldwide Aspac group of companies). The increase was also attributed to the improving economy and government relief measures.

Higher rentals from Singapore Post Centre and the leasing of space at the repurposed post office buildings contributed to a 22.2% increase in rental and property-related income at S$10.2 million. Miscellaneous income increased as a result of the amortisation of deferred gains on intellectual property rights relating to the collaboration with Postea, Inc.

Ironically, its mail revenue declined by 1.2% to S$94.4 million as a result of lower domestic mail and philatelic contributions. Logistics revenue, which includes revenue from Quantium Solutions, grew 166% to S$49.2 million. In retail, revenue improved by 4.1% to S$16.9 million on the back of higher contributions from financial services.

Total expenses for the Group increased 12.2% to S$100.2 million, due mainly to additional costs with the consolidation of Quantium Solutions. As a result of the Group’s larger staff base, labour and related expenses increased, offsetting the benefits from the Jobs Credit Scheme. Volume-related expenses rose as higher costs of sales offset the decline in traffic expenses. Finance expenses also declined as a result of lower interest rates.

The future’s not so bright

Said Deputy Group CEO Mr Ng Hin Lee: “We are cautiously optimistic about the business outlook, given the modest recovery expected in the global economy. However, SingPost continues to face various challenges including e-substitution, margin pressures and increased competition. In addition to these existing challenges, our operating costs have scaled up quite significantly due to the change in the terminal dues structure.”

With the Universal Postal Union reclassification of Singapore as a New Target Country from the category of Developing Country effective 1 January 2010, operating costs for SingPost have risen due to the increase in its net terminal dues payments for international mailing.

Terminal dues refer to settlements for the processing and delivery of international mail between countries. The annualised impact is estimated to be around 5% of underlying net profit.

The Group has said it has taken and will continue to take active measures to mitigate the effect.

Mr Ng added that the group would be disciplining its operations to watch costs while staying efficient. “On the revenue-front, we will focus on optimizing our resources such as our retail network, to achieve better yields.”