Good Friday morning. Thank you for joining us. Good to see everybody again. I suppose we met quite recently right after the strategic review announcement, so really appreciate your time. To me, this is really a continuation of that discussion we had. Looking back, it is a narrative of our continued transformation. That is the way I see it. The near-term results, which is highlighted in H2 and the full year, should give you some color of how that transformation program continues. I will start. This year really was an important point in our transformation into a global logistics enterprise, as we said, and this allows us to recalibrate for our next phase of growth.
At the start of the year, we initiated a strategic review, as you are aware, and we said that we will be exploring transformative opportunities in Australia, rebuilding our international business coming out of the pandemic, and reviewing the viability of the Singapore postal or the Singapore business in general, which has a large postal book. In that regard, I believe we have delivered on all fronts. Our transformation efforts are yielding results in these core businesses, and that really contributed to the performance for the year. I also like to make a note that globally, there continue to be tons of challenges against a global trade slowdown, both pandemic adjustments in the logistics sector. The group's net profit was significantly higher in the second half and as a result for a full year. In fact, doubling for the year if you look at the numbers there.
Clearly that benefited from exceptional gain from the higher valuation of the SingPost Centre, this building that you are in. More pleasingly, I suppose, is that underlying net profit, which excludes this exceptional gain, was itself up 28% at SGD 41.5 million. I will let Vincent speak on the set of financial results later, so we will provide more color. Allow me to talk through some of the businesses. As I said, over the year, we successfully executed and delivered on quite a few of our strategic initiatives, and these are the several milestones I would like to highlight. First, on the strategic review, which we announced in March, that has laid the path forward to create, enhance, and unlock shareholder value.
It is our opinion that the share price has yet to fully reflect the intrinsic value of the group, which we have said previously, and we will continue to execute the strategies to unlock this value. Here I would like to call out the transformation in our Australia business. The acquisition of Border Express lately is a real game changer. This has lifted our Australia business to the top five largest integrated logistics providers in this large market, and we are now prying for the next phase of growth. Another significant development was in the domestic business. The postal review that we took on was critical to resolve this drag on the group. It is a structural issue that, as we said, require a structural solution, and that will entail both near and longer-term actions.
Since the announcement of a full-year loss for the postal business one year ago, we worked closely and quickly with the regulator and obtained postage adjustment in 5 months. It was a necessary but substantial adjustment, which has since stabilized our Singapore, especially on the postal front. I am pleased to report that the Singapore business has performed well, driven by significant e-commerce volume growth on top of the postage adjustment in the second half. Very pleased with the total e-commerce volumes that has grown 11% year-on-year and especially accelerated in the second half, as you can see from the chart. Q4 was a 32% jump as we acquired new customers and increased share of volume of existing customers.
With e-commerce related revenue share of the business having grown to a significant size relative to letter mail, you can see from that pie chart over there, at about 41% against 47%, which means we are close to one to one. Growth in e-commerce presents a tangible opportunity for the replacement of that letter mail revenue in the near term. Through here, we had the benefit of the postage adjustment, which provided a revenue uplift to letter mail, offsetting the continued volume decline of about 6% year-on-year. We are now adapting and optimizing the infrastructure as the delivery profile shifts, and we focus on e-commerce opportunities. To cater to that growth, we are expanding our e-commerce touchpoints that will now include POPStops at major transportation points as well as pop-ups at our heartland areas.
I have said this before, the physical post offices have been incurring losses given the high operating costs and declining demand for postal services. As announced previously, we continue to review and look to optimize the provision of postal services with the regulator while maintaining the high-service standards. As part of our work on network optimization, a key strategic trust for the Singapore business over the next few years, we are reviewing the operations infrastructure, looking into the networks for posting boxes, delivery bases, processing facilities for optimization opportunities. This will continue through the next few years. Allow me to speak about Australia now. Both the FMH and CouriersPlease businesses performed well in the year amidst quite a challenging market, as you are aware, in Australia. Economic activity has slowed down with a high interest rate and inflationary environment, while operating costs have suddenly increased.
In the B2C space, I am pleased to report that CouriersPlease actually kind of bucked the industry trend with volume increasing about 13% on year. As a challenger brand in the market, CouriersPlease has grown volumes with new customer acquisitions and a higher share of existing customer volumes. On the B2B front, FMH was resilient. The 4PL business continued to do well with onboarding from a strong business pipeline, which means robust going into the new year. The 3PL space encountered a weaker market with higher operating costs, similar challenges faced by other operators. During the year, FMH became a fully owned subsidiary following the acquisition of the remaining 12% stake. If you are aware, we are now 100% owner of FMH. Not long after that, we made a pivotal acquisition of Border Express, which significantly elevated the size and scale of our entire Australia operation.
I'll just make a note here that in our results you will see it takes a one-month contribution of Border Express in the month of March. With the growth and expansion of the Australia business over the last few years, both organically and inorganically, the focus is now centered on the integration and optimization of the business to unlock value. Let me give some color on what this means. There is a substantial amount of opportunities available in the near and medium term from operations and network standpoint. As an illustration, in the area of procurement, we are looking at key spend areas such as vehicle, fuel, tires, waste management, staff, associate operations. With a fleet of about 600 trucks and trailers in the combined business, the size and scale of operations present potential for significant savings in these.
Further out on the horizon, there are opportunities in the group's operations, networks, and facilities, which we'll be evaluating as we architect the next phase of growth. As highlighted in the strategic review, we are set to explore partnerships and investments in the Australia business to further the scale as well as potential future equity options to maximize shareholder value. Moving on to the international business. We made good progress in enhancing our market presence, innovating customer solutions, and driving operational efficiency. In the last 12 months, we have established a series of strategic partnerships across various markets, including Indonesia, China, Vietnam, and the U.K. The study on the e-commerce transshipment hub in Singapore is still ongoing. Such collaborations are critical in expanding the global footprint of our asset-light model, enhanced service offerings, and growing cross-border volumes.
As shared previously, we've been developing and rolling out new hybrid postal/commercial solutions tailored for key trade lanes. Such options that cover both agile commercial solutions and the universal postal service gives us flexibility in meeting evolving customer demands. Additionally, we introduced our cross-border digital 4PL platform, which adds value to our proposition, enhancing connectivity, service quality, customer experience. With these initiatives, we continue to successfully reshape our revenue mix. You can see the chart on the right. The commercial revenue is more than doubling to 35%, which, if you remember, this business was really a postal supply chain. This has now evolved significantly. This allows us to enhance our product suite and customer experience. As part of the re-engineering of the business for operational and cost efficiency, there were several actions taken.
Hub operations and networks were restructured with the consolidation of operations and introduction of automation for mass sorting. Low-yielding activities in warehousing, various overseas operations were also phased out. Line-haul management is a central component of cost efficiency for the cross-border business, obviously, and this was further strengthened to ensure a rigorous approach to manage our conveyance costs. While air conveyance costs, I must add, are still about 30% higher than pre-COVID, the downward trend continues, and this year we saw a 13% decline in overall air conveyance costs year-on-year. All these efforts have contributed to the better profitability of the international business despite the market winds. That's for the business. I will also like to touch on a bit of the sustainability highlights for the year. We are progressing well towards the net zero targets that we have set. We haven't forgotten about this, obviously.
Beyond that, we are working through low carbon ways to support our customers' reduction of their Scope 3 emissions as more companies gear up for their net zero targets. We are quite pleased that we have done a life cycle assessment of our services in Singapore, which showed that our ability to deliver to the letterbox or to POPStation points or pickup drop-off stations, box locks, POPDrop, as well as vehicle electrification, all these bring carbon delivery options to the market that are far more carbon efficient than doorstep deliveries that our competitors use. Beyond carbon management, we continually adopt innovation for the business with AI used to help improve operational efficiency, workplace safety, and customer experience. Cybersecurity is also a key focus, and on this front, we are pleased to announce we have achieved a Cyber Trust mark certification this year.
This was made possible with strategic alliances with technology partners, with logistics solutions, with our generative AI techniques. Also, I will talk a bit about our employees, which is an important stakeholder in the business. I am happy that we are recognized as a Great Place to Work in our various markets this year through our engagement with Great Place to Work. Safety is a fundamental corporate value in SingPost, and I am glad to share that we continue to make improvements on our safety frameworks and lost time injury frequency rates have improved year-on-year across it. Now, finally, on the outlook. Conditions across all our pockets remain challenging, clearly with a global issue. Economic growth is slow. There continues to be inflationary pressures and add to that geopolitical tensions. All these have often popped up to present risk to our businesses.
Notwithstanding this, we are focused on executing the strategies that were laid out in the strategic review. Once again, I would like to highlight what those are. The reorganization and capital management focus at the corporate level, the strategic thrust at the individual businesses. I would encourage you to view our performance as we wrap up this financial year through that lens from this point, as you view us through the individual components of these strategies. We are making headway on several fronts of the businesses, as I have updated. Over the next three years, we will execute to deliver this blueprint as we transform the group into a global enterprise and create a lot of value for our shareholders. Hopefully, I have given you some color of what the business is like, and now I will hand over to Vincent to present the details on the financial results.
Thank you. Good morning, everyone. Good to see you all again. I suppose I can afford to be a little more positive. Before I jump into the financials, I would like to highlight a few key points first. I think the steps that we have taken over the last year or so have started to show some fruits, starting to show some results, with signs of, I suppose, moving in the right direction. Not quite there yet, but I think we are moving in the right direction. For this, the group did, I think, achieve a reasonably good set of results, given the very challenging business environment of slow economic growth, inflationary pressures, and a lot of geopolitical tensions throughout, not only the region but globally as well. Our core businesses in Singapore, Australia, international saw improvements. You can see that.
While other businesses, particularly our freight forwarding business, the post-pandemic contraction in the industry did have some impact on our Famous Holdings business. Nevertheless, I think we did achieve good earning growth, and our higher final dividend has been proposed from the group. Moving on to the P&L specifically, I would like to call out a few key items to highlight to the audience here. While revenue did show a dip for the full year, this is largely due to the pullback in freight forwarding and the adverse currency movement. Operating expenses were down in tandem, particularly in our volume-related expenses, which you find with lower average costs and sea freight rates and volume. In the second half, despite all these factors, the group did do pretty well by recording an operating profit growth of 3.3% notwithstanding the pullback those two years.
The second item I do want to call out is the segment gain. This is largely due to the fair value gain on SingPost Centre, as highlighted by the CEO earlier. We did book a gain of about SGD 38.4 million this year, bringing the valuation of SingPost Centre to about just over SGD 1.1 billion. In fact, moving on to the segment performance. Now over to solid performance, given our expansion to the overseas market. Over 80% of the revenue now are generated internationally. Particularly, Singapore has appreciated 6%-7% against the Aussie dollar and the Chinese yuan. The Australian business is now our largest business segment to the group. You expect the movement of the Aussie dollar will have some impact on the numbers.
For the full year, the estimated currency impact on revenue is about SGD 73 million, and on operating profit would have been SGD 14 million higher if we had happened in constant currency. From the chart here, you can also see how significant the contraction in freight forwarding has been. As we experienced throughout the sea freight sector, the value has come off substantially post-pandemic, especially with the disruption in the Red Sea. You can see the Famous Holdings revenue and operating profit coming down 50%, 60% respectively. Moving on to logistics, which now include our core business in Australia. We have recorded a lower revenue and profit, really through our freight forwarding decline. The Australian business has been resilient. Revenue was flat, largely due to currency translation impact.
The 4PL business and the B2C last mile delivery business continued to do well with new customer wins and higher volume. That we have touched on earlier. We have some headwinds faced by the 3PL business that is consistent across the industry with high operating costs, lower fuel surcharges, and margin compression throughout the industry. This result here for the Australian business includes the one-month consolidation of Border Express. Freight forwarding contribution come off significantly from over SGD 400 million to about SGD 263 million this year, resulting in the logistics segment's lower revenue and profit. Quantium Solutions has been re-engineered and is now part of the new international business segment. Besides driving operational efficiency, the low-yielding warehousing contract has now all been phased out or mostly been phased out. This has led to improvement in its performance as well.
Moving on to the postal and parcel segment. Postal and parcel turned around from the loss of last year to post an operating profit of SGD 7.5 million this year, largely due to improvement in the international business. As mentioned, the integration with our logistics solution has created pretty good operational synergies and also rolled out new commercial cross-border solutions. With the moderation in air conveyance costs, tight cost management, especially in air haul costs, the international business continued to improve our profitability. This is despite the pullback and the decline in cross-border volumes in e-commerce that is seen globally. The domestic business, big growth is e-commerce business. Our revenue has touched on, this is largely off the back of strong volume growth in the sector. Of course, moving on to financial position.
The group's financial position and balance sheet remains healthy and strong. Cash position is steady at just under SGD 500 million. Borrowings were higher this time around, largely due to the acquisition of Border Express as well as the up stake in FMH. As outlined in the strategic review announcement, capital management is a key focus. We continue to look at opportunities to recycle some of our assets, monetize some of the non-core assets and businesses, reduce that, invest for investment in the future, and then potentially also return some back to shareholders as well. Lastly, with regards to proposed dividend, the board has recommended a final dividend of SGD 0.56 per share. Together the interim dividend of SGD 0.18 , this gives a total dividend of SGD 0.74 per share. An increase of 28% over last year's payout.
That is the end of our presentation. Thank you. I think open for questions.
We can open for Q&A, so if you want to ask a question, you may do so.
Yeah. I will start first. [Jerry] from UOB Kay Hian. Can I check with you, for the one month for the Border Express, right? How much did it contribute to top line and also operating profit guideline?
Top line is SGD about SGD 25 million. Bottom line is SGD 2.5 million.
For one month?
For one month.
Can I ask you?
Yes.
Is every month quite consistent in terms of the operating profit or is there seasonality between months?
There is a seasonality between months, but it is not as because it is mostly D2C, so it is not as wide variance as the retail business. So it is fairly consistent, but there is seasonality. I will also add to say that generally in the last quarter, it is usually a little bit slower as well.
Sorry. Follow-up.
Sorry. Thanks. Paul from Phillip Securities. Just on the Australian business, in particular, I think FMH, you mentioned a lot on the macro conditions. Could you maybe elaborate a bit on how the macro conditions is actually impacting FMH business in particular, please?
Yeah. There are two parts to our Australia business. There is clearly a very large 4PL business, and also we are integrating and synergizing our 3PL businesses. Border Express, an example is a 3PL business which we will couple with the rest of the 3PL assets that we have in the Australian business. That is the two main parts. And of course, there is also the Courier Business is a parcel delivery business, a more D2C business. How do the macro factors affect these three components? Clearly from a cost-based standpoint, cost has been increasing, all the inflationary pressures. There is even thought that RBA might have a I do not know, maybe you all can tell me. They are saying maybe one more hike, so hopefully that does not come.
But there is all these costs that has flowed through the business over the last couple of years, and it is starting to hurt the industry at large. There has been patchy success in the industry as a whole in passing on some of the cost to the customers, which means your margins are being compressed. So in the 3PL space, there is that effect of cost being eating into some of the margins. Through COVID, there was also a lot of investment by the industry in general, not us, but generally in industry. Some players have doubled down on investment CapEx. They have put bloody maybe got a bit bullish and carried away. And some of that additional cost is now coming to roost now.
If volumes are not there and there is a lot of excess capacity, which means the market has also not been able to price, generally to price it as aggressively as they want. So that will certainly provide some downward pressure on our 3PL businesses. And we are seeing it, but make no mistake, our 3PL business is facing significant headwinds and on a year-to-year basis it has been challenged. Over half of our business is 4PL, and our 4PL is less exposed to all these cost pressures because we are really an orchestrator of supply chains, and we have the ability to pass on the cost a lot more effectively to our customers. In a way, if there is all these cost pressures around and the vendor base is pricing it lower, us being sort of the go between we are less exposed to the immediate pressures on the cost.
In fact, we are seeing the opportunity in our 4PL business to work and have that as an advantage instead. You will see that our 4PL business have actually grown and actually contributed significantly. The balance between the 4PL business and the 3PL business is overall very strong as a result. We are fortunate to have that construct, and we are very steadfast, very disciplined in making sure that we do not grow this business only on the 3PL front. We want to make sure there is a very healthy balance of the asset-light model that we have. That would not change things. The third business, I will just be a little bit. The B2C business. That one is a matter of the retail habitat. Retail is down in Australia.
We are, at this moment, as I mentioned earlier, a challenger brand, which means we aim to onboard market share. That business has continued to do well through the year. It has improved, it has grown bottom line-wise, and we have gotten more market share as a result. These are the three. In a way, the business itself in Australia is relatively diversified. It is not a single sector focus. Yes, it is logistics, but there are many different aspects in logistics that allow us to have a more balanced view of things. In general, as a result of this business setup that we have, it has been more than stable. It has improved, and we are very happy with the results so far.
If I can just have a quick follow-up. When you say double down investment capacity, maybe can you elaborate on what type of competitors?
They may have bought more trucks and fleet, and they just have more capacity.
Again, just another quick follow-up is that when you say 4PL, does it mean that because everyone has built out so much capacity as a 4PL player you can take advantage of this excess capacity? Is that one way to understand?
The way a 4PL works is the bigger the vendor base, the better it is for us.
Yes.
Right? Because if there is less of a vendor base and the balance between the customers and vendors, you have less to work with, right? I guess with, in a way, you can almost imagine with the excess capacity, it could also be a benefit. As long as we get to be smart about how we organize the vendor base and the solutions for our customers. So far, we have been able to, I suppose, benefit from that.
Yeah. Thank you.
Hopefully that makes sense.
Yeah.
If you need me to elaborate a little bit further, I can.
Thank you.
Okay. Can I check, for the past year, how is your performance for Australia on a constant currency basis if we exclude Border Express? Because I think in Singapore dollar term it looks quite flattish.
In terms of revenue, the 3PL business probably rolled back a little bit, maybe 15% in terms of. Maybe 10% in terms of revenue. In terms of revenue for the 4PL business, it has been relatively flat year-on-year. There is kind of a just down a little bit on Aussie dollar term. But in terms of operating profit, the 4PL business did do better. It is up by maybe about 12% to 13%. Then the 4PL business is down by maybe just about 15%. They quite kind of offset each other, so it is relatively flat in terms of operating profit numbers.
Sorry, you mean 3PL down 15%?
Yeah, down roughly 15%. The 4PL operating profit was able to offset the decline in the 3PL business. As a group, Aussie dollar perspective, operating profit came in relatively flat year-on-year. Revenue did see a little bit of pullback, maybe about 5%, 10%, just on the largest number on a constant currency basis.
Cool. Can you share more about how you expect Australia business profitability to perform this year? In terms of your. Given your targets on synergies.
I think from the Australian business perspective, there is quite a huge amount of opportunities that we can look at. In terms of, let us talk about the simple ones. In terms of 3PL business, it is obviously in a very competitive market where there is a lot of capacity in the market. The good thing about our 3PL business is probably two things. We are not that big in terms of how much we have invested, so our capacity still remains relatively healthy. We are primarily also focused on the B2B space, so there is a lot more consistency in terms of the revenue that we generate. That is good. The third thing that is good about this sector for us is we are also in very lucrative and very specialized lanes and sectors.
We are focused on very specific areas of the 3PL market, so we do not compete in the general market in that sense. That give us quite a good base to work with. Then we talk about the 4PL business. 4PL business continues to be the driver and the opportunity for us. We continue to see a lot of upside in that. We are by far the largest. The margins has been very lucrative and very consistent throughout both pre and post-COVID. We continue to see good uplift in that space. As we get more vendors in, as we get more customers in, that just continues to build. We see a lot of upside in terms of 4PL business.
Then in terms of synergies, we now have a group of maybe eight or nine different companies and different brands, Border Express being one of the larger 3PL business, not only in our portfolio but also in the country. We do see quite a fair bit of synergistic upside across the group as well. Synergies in terms of we need a back office. If now I have three or four different key back office functions, we consolidate that, there is immediate synergy savings in there. There is synergies in terms of revenue in two fronts.
One is obviously sharing of customers. You have different group of customers engaging different business now. We bring them together, and we can share that customer base. That is one revenue uplift. Two is you are able now to monetize a customer many times over. A customer that was on only 4PL or they used to go 3PL, and now we can then offer them across the entire value chain. That also help us to, in that sense, have that value uplift from a single customer. We do see a lot of revenue upside in terms of synergy as well.
If we bring all of this together, I think certainly fairly optimistic in this year if we put our energy to do that properly, which is a key objective for us this year, then I think there is quite a bit of upside for us in terms of our synergies as well in Australia.
In terms of timeline, which one do you think is the lowest hanging fruit that we can see sooner?
I think what we are doing now is we are working on both fronts. There is a specific group of people that drives the value uplift from the revenue side, and there is a specific group of people that is driving the operational integration across the group so that we then bring in the synergies from our consolidation of the businesses. I think we are targeting both, but in terms of quick wins, I think the revenue upside is probably the first. You can connect the customers up very quickly and bring the value to them very quickly.
Thank you.
I think, just to add to what Vincent said, there is an integration project that is being commenced already. We have gotten very quickly to this. I think we acquired Border Express on the first of
First of March, yeah.
That project has already started. By about the end of this quarter, I think we should have a good inkling of what is the potential we can get out there. Just to add to what Vincent said, I do not think the potential is immaterial. It is going to be a relatively sizable material synergy that we can try to target.
Vincent, would you be able to quantify your
Unfortunately, I can't right now. That will be something that we will have better clarity by the end of the quarter, as I said.
For the posts and parcels for the second half, could you share the breakdown of the operating profit, which ones from the domestic and which ones from the cross-border solutions from Singapore? I'm trying to understand which ones led the growth in the second half.
If you go back to the slide, do we have a slide on the posts and parcels? Out of the SGD 7.5 million, I think a good chunk of it came from the international business. The Singapore business, if I can be a bit more transparent here, we are still reporting a loss in the first half, if you recall. In the second half, we initially reversed that. For the full year, the Singapore business is also profitable at this point.
Oh, that's good. Okay.
But by far the larger part is the international business.
Still the international.
Still the international business.
We are happy with what the Singapore business did in the second half. On a full year basis, it is marginally profitable. There is nothing exciting about marginally profitable. I guess it is the second half performance that was better, which you look at now.
So for the second half, would you say it is half operating profit for both sides?
No, it is still largely-
Largely the
In terms of illuminating shareholder value, I think you guys actually talked about halfway. In terms of timeline, when can investors expect the first development in terms of shareholder value?
Okay. A lot of work is being focused on this. Hopefully, the results also give you an inkling of what are the things that we've been working towards. The options are on the table, and clearly there are specific projects that we are working towards in, let's say, just right at the top, the restructuring of the group. Some future optionalities, some of the non-core divestments, we are looking at that quite intensely. Through the course of this year, I expect that there will be more that we can share on some of these potential capital management exercises. As for the individual businesses, they are quite clear. As ongoing BAU businesses, Singapore business has to optimize, I alluded to it earlier, the physical post offices continue to be a source of opportunity for us if we can streamline that.
That is something that we will be working very progressively towards. Australia, the integration of the business, the synergies extraction is number one. Beyond that, the continued growth of the business. But at this moment, I would say we want to digest what we have. That will probably be the right thing to do. On the international side, it is just continue to expand the networks and to work on the cost improvement as we continue to see the air freight costs come down. I do not know whether that is a question you have or are you looking at any specific projects in particular?
In terms of divestments, because in the strategic review, I recall we carved out Famous as a core, and we also talked about for a while now STC, the potential divestment of [inaudible] STC. In terms of timeline there
Any update that you can provide?
In the strategic review, we said over the next three years. I would say it is probably more front-loaded than over the next three years.
Thanks very much. A few more questions on my end.
Sure.
Strategic review for your international business. Majority of the profits from the international business? SGD 7.5 million in operating income, is the majority of that from the international business?
Which income?
The postal business. The profit from the postal-
SGD 7.5 million.
SGD 7.5 million.
They are mostly from the international. The Singapore business, domestic business, just an operating breakeven.
For this year, do you continue to see improvement in the international business?
Yeah, we do.
What kind of improvement do you foresee in terms of scale of that?
For the year past or the-
For the upcoming current year.
Upcoming year will be hard for us to make any projections at this time. Certainly, it is the combination of the revenue improvements, and that is the function of how the market is. It is quite soft, so we will see how we can extend on that. The other will be the cost improvement, and air freight continues to be a very big source of cost for us. That is something that we need to continue to move. As I said earlier, the air freight cost has still not reverted to the pre-pandemic levels. Not quite there yet. While still 30% higher than before the pandemic, that said, on year it has improved 13%. We continue to see that kind of trajectory coming down. It is a big bucket of cost for us. It continues to move. But then it is not a straight line.
You have all these conflicts, and then you have all over the place. It is kind of patchy in terms of improvement. Hopefully longer term, you can see that it has stabilized and coming back.
My next question is on the freight rates. Basically, do you see their business bottoming or do you think that for this year there is still more downside in terms of revenue and earnings?
If I can be candid, it was trading a bit stronger than I thought over this year. Part of it is because of some of the continued tensions around the world. As in freight forwarder, some of these movements can impact our profitability sometimes positively. It remains to be seen how this year is going to turn out. I think that our own projections is there will be a softening, as is across the entire industry. But every time something pops up and something happens, there could be an impact to that line. Once again, it is a bit patchy. If the question is, do you see it going back to those numbers in BL? No, that won't happen. That was a pandemic boom that we experienced. It will never be that high.
Improvement from last year?
We see that it will soften.
Will soften this year. For the Australia business, how do you see the Australian logistics business doing year-on-year for this year? Do you see it continue to trend up by maybe about 5% kind of revenue book? I mean, is that possible?
Can't comment on future, but I guess if you look at our track record, despite the conditions, we have been, I would say, more than stable. We have continued to even organically grow the business. Even when revenue has been tight our bottom line has continued to grow because of the nature of the 4PL business, we have been able to extract certain cost benefits as a result of the vendor base being a bit different. Now with the addition of Border Express, certainly there will be an organic growth that you can see on top of what we had from last year. The Australia business is meant to grow. We certainly want to continue to grow the business. There's been a good track record of us growing the business, being very defensive about the volumes. Our customers' churn rate is very low. Low single-digit churn rates.
If we continue to offer the kind of service that we have to our customers, I think we will continue to keep them ahead. It's just about improving the yield that we have on that business.
My last question will be on the share buybacks, because I think recently also, [inaudible] also, if you saw they want to improve shareholder value at each share price. I think you also came out with a share buyback for that. I think that for yours from CapEx moving forward, it's really not very high, and your cash position is very comfortable. So, what would management view is for the share buyback? Is there any plans or any numbers open to that, or basically it's not for consideration yet?
When we look at our capital management strategy, our preoccupation and the priority would be to review our debt position. As we've expanded over the last couple of years, we have taken on a bit more debt to facilitate that expansion. That is certainly top of mind. When the cash flow improves as we expect it to, so with improving earnings, that will be something that we'll be looking at. If there are divestments on the near horizon, those will also be a useful source of liquidity for us to pay down the debt. We've said this before. I think that will be our primary approach to capital management at this point. Is there anything you also want to add?
Well, I suppose if you look at the strategic review, one of the comments is that we will look to return some value back to shareholders as well. So that will take on the form of dividend form. So certainly, I think that we are also mindful of.
But your cost of debt actually is quite low. So if you return, pay down debt rather than you. Then you take the cost of equity is so high, right? So it will be actually more prudent for you to keep the debt, especially when rates are coming down this year.
Certainly the debt is useful for a number of reasons. So the cost of that is obviously going to be lower than the cost of equity. So that's clear. Debt is also useful in terms of effects management, right? So we do factor that in. So there are many things that we look at in terms of capital management. So one of the considerations will certainly be debt as well.
If can add on to [Jerry's] earlier question. You did mention that Famous, right, EPS will continue softening. I was wondering in terms of what are some of the catalysts that you might be looking out for both macro-wise in terms of the broader industry to determine whether conditions for that business have more or less bottomed?
Famous softening, not FMH softening.
Yeah.
Yeah. Do you mean Famous or FMH?
In terms of the 3PL business, the broader 3PL business.
3PL is in Australia.
Yeah.
When I made the comment about softening, it was the freight forwarding business, Famous, not the Australia business, not the 3PL business. That one we have had a track record of growth. We have been very defensive, so we continue to expect growth from that business. I do not know if I got your question correct.
I think more in terms of the 3PL business, because I think so far you mentioned that there are quite a lot of macro headwinds against that particular aspect of the business. I was wondering what are some of the catalysts you would consider to see whether the consumers have really bottomed out on that part of the business?
I suppose one of the first indicators, because a lot of our business is actually. We have two parts of the 3PL business. There is one part is the B2B. A good indicator of the B2B business will be, of course, the general market activity. If that has picked up in terms of business investment, in terms of capital investment, if that has picked, that shows that businesses are growing, volumes are up, that helps B2B part of the business. The primarily weakness now in the Australian sector is retail sector. There has been a lot of pressure on the retail sector, primarily from inflationary pressures and cost of living issues. We do see a fair amount of pullback in terms of the retail sector.
The impact of the retail spending pullback did have some impact on our B2C business, which is the Courier business last month. But the good thing for us, even in our last month, we have been able to gain market share. We are a small player. We have at the moment about initial 4% of the market share. We are a relatively challenging player in the small market player. Our focus has been driving volume, our focus has been improving efficiency, our focus has been service quality. That did help us to bring a fair amount of volume, even through this declining period. What we have done well is to increase market share wallet. What it means is we have gained new customers from other competitors. That particular market has been very challenged. Last month the real market has been very challenged.
Incumbent, of course, has a lot of issues on their own. The small players have a lot of issues on their own. We are somewhere in between, and we think we have done relatively well. We have seen increase in volume, we have seen increase in profitability, we have seen increase in service quality. I suppose if the retail market stabilizes big time, then this is actually quite prime for opportunities as well.
Thank you.
I suppose on a macro standpoint, we have to look at the interest rate environment and how that is affecting the consumer sentiment. I think it is relatively sensitive to that. I think everybody is a bit cautious about how that ends up. If there is a more dovish approach to interest rates, I think it will certainly move the needle on retail and on spending. For us, customers buy stuff, that is more work for us to do. It is very clearly linked to that.
Can I just clarify on the international business when the conveyancing or air freight cost comes down, and you say you benefit, but won't the competition pass it on? I'm just trying to understand the dynamics, that part of the-
[inaudible].
No. What I mean is that if air freight comes down, won't competition also just pass it back to the customer? Or how does the mechanics work? Air freight comes down, it improves your cost. But won't competition pass on lower air freight cost to their customers?
I guess if the whole industry experiences that, then it's a zero-sum game. I think that's what you're trying to say. Everybody benefits from it the same way. But maybe the overall industry will be uplifted because the cost of moving stuff cross-border is more sensible. So there could be an uptick in the total volume created, I suppose, so that could be one impact. The second is, assuming everything is status quo, then there will be a better margin contribution as a result of the cost base going down because air freight is such a big part of our cost base. We don't own any assets, so it's not like others in the space where we have planes or something we don't like. We basically work on a very asset-light model.
We will be, I suppose, quicker to realize some of that impact if the cost of air conveyance goes down. We're not running our own fleets.
Does this help as a hub status if air freights, I mean, just get down or maybe drop significantly?
Because there's a lot of our volume passes through Changi. If the hub is effective because air freight is increasing, there's more air cargo capacity, there are more flights being restored, that gives us a lot more options around moving our stuff around the world. So not just from a cost standpoint, but also from a, I guess, capacity and network options for us.
I suppose this is where the elasticity issue is. So the selling price is a little bit less elastic than buying price. So at some point, you can't really drop price as quickly as the cost escalates. So in some regards, we have had to be very careful in terms of margin protection. So we have had to maybe turn down some businesses because the margins are just way too thin. So you can see that revenue pressures on our numbers as well. So you can see while revenue has come down, our costs have increased. So that is essentially what happened. We have to be quite careful what we pick up. As the overall cost comes down, a lot more opportunities for us to then look at more profitable businesses as well.
Like more routes?
Yeah, more routes we can open up, more opportunities to source more business. We can pick up more volumes, we can open up more lanes. We can be a bit more progressive in terms of looking for businesses. So where margins are very, very thin, we need to be very careful. You do not pick up businesses where every time you move something, you lose money. Essentially, when that cost comes down, the margins improve, right? And a lot more opportunities as well.
Maybe can you elaborate on the, as you go deeper in this hybrid model, how does that commercial part help you competitively? I mean, I know you touched on it in the past, but as you go deeper into it.
Our traditional strength has been moving things in the postal network. The performance across the whole world is sometimes very patchy. Some postal companies in some countries can do it better than others. And some are less effective in terms of some services as in maybe the lead time is longer, maybe the statuses are not as clear. Maybe some do not provide scanning, as you know that. It depends. We are in 200 countries around the world. Certainly, the consistency of the service is not as tight, right? So commercial options for us means we move away from just that sole source of using the network that we have in postal allows us to have other options. And once there are options, we have choices. Once we have choices, we can have better service outcomes, better customer experience. We can have options around service levels.
We can have options around tracking statuses. We can have options around costs. And that just gives us a lot more resilience in what we do. So imagine you are the customer and you are procuring a service from us to deliver goods around the world. All you want is a consistent level of service across all the markets that we serve, right? And as I said, with postal, sometimes we cannot achieve that. Once we have identified opportunities where in certain markets, not just postal, we have some commercial options, it gives better confidence for our customers that this is something we can do on a consistent basis. Coming from a postal organization, our view has always been it is a great advantage to continue to have that postal service as the baseline service. Put it bluntly, whatever you want to send around the world, it can be done.
We don't have to stress about it. It can be done. May not be to the service level that is required. May not be to the price point or to the expectation as required, but it can be done. If we continue to rely on that as the primary service, then that's not for the future. We had a very, I guess, successful past on that basis. The pandemic has really created some changes in the market, and we fully see the challenges in continuing that old method of the supply chain, but also at the same time forces us to adopt the new commercial methodologies. We're quite happy where we are. We said that on the slides, about 35%. That number continues to move. Today, the number is probably more of that now. That's for the full year, right?
You can see that at some point in time, we will have a very good balance between the postal options versus the commercial options.
Am I right in saying that the margin improvement is just solely due to this hybrid commercial solution and not the postal baseline service as much?
Postal will decline. The fact is the way the world is, you will use less and less postal options going forward. Why do we have that postal? Like I said, it's a baseline service. It's stock service. It's the economy class, right? You want to build on the other more premium services for your customers.
Why not just focus on this business? Because I am assuming this will be higher margin than just completely go to 80% or 70% of SingPost revenue and not focus on the baseline business anymore. Seems like this is still growing and a lot, as you mentioned, I am seeing that the growth is quite good.
Yeah. Clearly we are, but you can see that it takes time to organize this. It is not just about that one lane or two lanes. We could be pretty good at a couple of lanes that we have.
But if you want to do this very well, you need to address the entire region. What can we be good at? We also acknowledge that to say that we are global cross-border network, that is not our starting point. We want to be known for certain key lanes in Southeast Asia, perhaps. What we can do with our strength, which is the ex-China market. But beyond that, how do we create options that it is not just the same old that we do?
Just a final confirmation. Basically, the margin improvement was just basically due to this cost solution business. Just to confirm again. Because as you said, the volume declined as well.
Okay. I know that going forward, we will have a better disclosure in terms of the segmentation that we will change. But in this case, as [inaudible] says, post and parcel is made out of two parts. There is the domestic and the international part. That is the way we have been presenting, but I am happy to maybe offer a bit more color. So in terms of margin improvement between the two, the Singapore business has had significant margin improvement because of postage adjustment in the second half, plus growth in e-commerce tapping on the same network and the same capacity that we have for postal. Basically, our postmen have more to deliver, and there are more e-commerce items than letters. That is now achieving close to one to one in terms of revenue, as I showed you earlier.
In that business, first half was negative, second half was positive, net marginably positive for the full year. We are very happy with the margin improvement in that business. So we rectified the fundamental aspect of it. Now, in the international business, the margins continue to improve. Part of it is because of the ability to bring on commercial solutions, which means the quality of revenue is better. At the same time, the cost base is lower because of the air freight cost that is becoming more affordable.
Thank you. For the international business, despite your mix of commercial going up really nicely, the total volumes continue to see some shrinkage. Does this mean that the ability for you to win new customers or encourage the shift towards commercial is still unable to offset the faster pace of decline in the postal? Given your expectations on lower cost this year, when do you think you will pivot a bit more aggressively towards trying to regrow your volumes again?
That is why I said this business is still work in progress. This year we will have a lot more focus on this business. The fact is, if we had not done the commercial growth, the top line is still going to drop. The commercial piece is defensive in question. It is the same way as maybe you look at our domestic postal business, and for a long time we met, we were trying to explain the turnaround will come. That is because it was not at one to one. Now it is at a one to one, close to 40% over each in terms of e-commerce and letters in terms of revenue.
If you think about the numbers, one to one for the postal business domestically, a letter is about SGD 0.50, an e-commerce item is about SGD 2.50, so about 5x the intensity in terms of revenue per item. At this moment, we are delivering about five letters for one packet, so one to one. At the same time, a 10% drop in letters can now be made up by a 10% increase in e-com. In the past, it was not, nowhere close. So a 10% drop in letters will need a 50% increase in e-commerce. Just not there. The moment it gets to a point where it is more one to one, then we can get a bit more aggressive in switching mode. I think it is the same story as this one. So there are postal channels that are coming down this far. 65%, 35% right now.
At some point in time, when it gets closer to one to one, then you can start to see the benefits coming.
More like
Continue work in progress. We are going quite aggressively at this thing. This is quite a competitive space as well. At the moment in Singapore, we can probably consider ourselves a little bit more dominant in some of the things that we do. This one, we really need to architect the network. That is why all these partnerships in the various markets become very important for us.
Is it fair to assume for now it is more of a cost management, like trying to drive margin improvement until you see the mix stabilizing half, then we should see the revenue starting to pick up more strongly?
Correct.
For your Singapore site, you mentioned e-commerce volumes continue to do quite well in the second half. Are there any new initiatives that you would like to share? In terms of one of your key customers here, any updates in the latest quarter, given that they have done quite a sizable deal?
We are gaining our market share, that is what I know. The numbers speak for themselves. I think the e-commerce market last year grew about 9%. That is statistical. We grew 11% for a year, which means we have not just been in line with market, we have done a little bit better than market. The second half was a lot more positive. We saw growth that was a pretty decent number. High double digits. If you look at the chart there, first quarter was still a very weak pattern. The second half was very strong. In terms of strategy, we are not positioning ourselves as much to just the platforms. We have discussed this before. The Singapore e-commerce market is generally dominated by the platforms, the two big ones, and maybe Amazon. Generally, that is it.
If you think about it, your own spending patterns, because I did go and count last. Maybe 3/4 items you buy are from the platforms. The 1/4 you would have bought from a brand.com directly or someone else, not those three. I think it works out that way. Our strategy is also to extend this long tail. It is not just about always just the platforms. We have brought on quite a few direct customers outside of the platforms. Some of these brands directly want to have relationships with us. We want to ensure that we are represented well in all the various customer segments. It is not just the platforms. Platforms also have a far more purchasing power. We also want to make sure that we have a good balance with the rest.
In that regard, I think we did quite well, which is why Q4, that growth wasn't based on platform growth. That growth was based on direct brands generally that led to that uptick there. Hopefully, that continues. We're quite excited that we're on some immediate results, but hopefully that continues and that will be the trajectory. Hopefully, that answers the easier bit of color.
On a group level, how should we be thinking about CapEx this year, upcoming financial year?
We continue to invest. I think what we want to be clear is, whatever investment we make generates a return that is suitable. I think that's always clear. In terms of CapEx, they will continue to be invested in Singapore in terms of re-engineering our network. You will continue to see a merger of our e-commerce versus postal network. That will entail some investment in there. What we have been very careful over the last couple of years is the number of things that, one, the investment needs to pay for itself. It must generate return. And two, we want to ensure that it is sustainable before we put in any substantial CapEx investment either way. I think the point where we can see that it's growing, it is fairly sustainable. So it probably has a little bit of investment in there.
There will be some. Is it going to be massive numbers? We don't think so. There's going to be some replacement CapEx in there as well, both in Australia and Singapore, in terms of the assets, mostly fleet. In that regards for the Singapore fleet, the main focus in terms of the fleet replacement is twofold. One is the retooling of the network. So you move from more predominantly two and three-wheelers into the four-wheelers. And two is more on a sustainability basis. We'll move away from combustion engine to EVs progressively. Those are the main part of the CapEx investment. We don't think there are going to be massive kind of CapEx investment over the next couple of years, but we will continue to invest, and we think it's important.
Assuming you manage to come into agreement regarding your plans for the postal office network, will there be some CapEx required to facilitate the switch towards more self-service?
Yes, there will be some. Probably, again, not going to be massive. There is probably going to be some cost in terms of the restructuring as well, which we will have to bake in. Given the network, there will be some, but it shouldn't be some massive number that we're looking at. What we do want to say is the whole purpose of doing this is to make the network a lot more pervasive, a lot more asset-light. When we do that, it will free up assets as well. So there are assets that we own currently that potentially can be monetized as well. So overall, the whole thing is meant to cause self-funding.
I'll be a bit more candid. The three businesses. So that's the big one, first Australia. At this moment, we are digesting. Won't say never, but at this moment, the priority is digesting it. So will there be CapEx on the near horizon? If a good opportunity presents itself, maybe. But that's not the current priority. The international business now that it's in recovery, we can start to do some of the investments that we've always planned, but we put on hold. Targeted, improving process capability, improving automation of re-engineering some of our sortation machinery, and so manageable amount of CapEx, so not significant. The Singapore business is a huge business, so there are commitments on greening the fleet. There will be a sizable amount of CapEx, but that, to me, is mobile assets. So it's not so much the engineering. This one, because we are the near-term uptick.
When we were unprofitable last year, all the plans that we wanted to invest into all the sortation machinery and to optimize our engineering resources, all that we had to put on hold. Now there is good traction. We are reviewing it, and we are activating it. I'll go so far to say the latest numbers based on Q3 and Q4 make us rethink that it may be not enough. We need to maybe build more capacity in for the future. So we are reviewing those plans. There will be some level of CapEx that will come into the Singapore business as well, given that the near-term trajectory has been very positive into the e-commerce front. I think that's it. Those are the key CapEx items.
In terms of your view on the parcel locker, whether it is community-based or at individual city blocks, any change in view over the past three years if now you are pivoting more strongly into e-commerce?
We do have the locker network, so that hasn't changed. We continue to look at plans to deploy those. Overall, we have a strategy to be more out-of-home. We call it out-of-home delivery options. We would try not to deliver to home if we can. To physical addresses, if we can, we will. Into lockers. We also have all these POPStop points. If we open up all these touch points, it is going to be a lot more effective than just the lockers. It is two-pronged. Both the physical lockers that will continue to be developed, but also on the POPStops, POPDrop, and POPStops that we have. You will start to see a lot more.
Maybe extend that a little bit. If you look at our current infrastructure now, we already have a network to every HDB block through the letterbox. It is a matter of making sure that we leverage that properly. At every HDB block now, we already have access to pseudo lockers through the letterbox. We already, through our network, have access to maybe 300 odd condos now through our parcel center network. Already we have quite pervasive access to some of this network, which I think we could do well to leverage as well.
Let's say for the cost of debt, it is now 3% ± currently.
Depends on currency.
I mean overall. Based on your blended basis, will this cost of debt stay quite stable for the next one, two years?
The largest by far, a huge proportion of it is fixed. We have done well to hedge our interest rate exposure. Every time we enter in over the last couple of years, we have managed to hedge it. It has been fixed for the tenure of the loan.
Roughly for next two, three years will be the same.
will be the same, yeah. We have a small portion of AUD loan that is not fixed. That was with the view that we do not really want to fix it at the high point of the cycle. We did leave a little bit exposed so that we can benefit part of it. But the vast majority of our FX, I would say in excess of 80%-90% is fixed.
For our swaps is also fixed, is it?
Four more years.
Oh. When is the first step up?
Four and a half more years to go.
Four and a half years.
The step-up, I think, is 5 basis points or [inaudible], from the time we did it. So the beginning of last year. So maybe about four years.
Four years. The step up will be based back to the market.
Yeah, back to market. I cannot remember what is the step-up rate now, but it is four and half more years to go, I think.
All right. If there are no more questions, we can end the session for today. Thank you everyone for joining us.
Thanks very much. Thank you. Thanks for coming.
Feel free to reach out to Celine.