I'm Selena from SingPost investor relations. Welcome to post briefing for our first call. Allow me to introduce management here today. We have our Group CEO, Vincent Phang; Group CFO, Vincent Yik; our CEOs for our businesses, CEO for Singapore, Neo Su Yin, CEO for International, Li Yu; and our Australian colleagues, our CEO for FMH, Simon Slagter, CEO for CouriersPlease, Richard Thame, and also our Head of Strategy, Lee Eng Keat . This session is webcast live and will be recorded. We will just hand over to Vincent now to start.
I'll start with some key highlights for the first half results and update also on our strategic development. In a bit, I will ask Simon to speak about the latest acquisition that we made yesterday. But before Vincent runs through the financial performance. We continue to see the fruits of our transformation with strong operating performance in Australia and the international cross-border businesses. This was despite the headwinds in the operating environment, the post-pandemic adjustment in the logistics sector worldwide.
You would know volumes across logistics operators globally have been weak as trade flows moderated with the economic slowdown. I would first like to provide some color on two major movements so that you can have some context to reading our financials. The first is the slowing freight forwarding market, and the second is the strength of the Singapore dollar, given the globalized nature of our business point. Freight rates have continued to come off the highs during the pandemic, affecting everyone in this market and no doubt us as well. This normalization of sea freight rates has reduced our freight forwarding contributions.
With the Singapore dollar strengthening considerably against the regional currency, this has had a significant impact to our finances. It does not reflect as accurately the underlying strength of the business and more global, as I said. We will narrate through how those movements are. From a revenue standpoint, off the top line, we were impacted by about, say, SGD 100 million and SGD 50 million respectively due to the softening freight rates and currency movements. You take that into consideration.
You will also have seen that our underlying net profit coming in slightly above last year at SGD 13.4 million. However, adjusting for currency movements, we are pleased to report that the underlying net profit would show an increase of 52% over the same period last year. Clearly, the financial results will be covered in greater detail by Yik. We are advancing well with our strategic plans for growth and with the acceleration of strategic initiatives across the group. The strategic review that we commenced in May is in advanced stages, and the next slide provides an interim update of our key principles.
In our last results briefing in May, we said that a review of the postal services for commercial sustainability was necessary, and the domestic postal business indeed recorded a loss in the first half. We have since announced a substantial adjustment of domestic postage rates with effect from October 2023, which effectively is in the second half. This quantum of increase was necessary to put the domestic postal business on a stable footing. With this change, we expect that this business will be profitable barring unforeseen circumstances.
The focus is now on charting a sustainable future for postal services, and this is an important progress point for us as far as the strategic review is concerned. That's the first one. Over the last four years, we have transformed our business to focus on high-growth logistics areas, specifically into Australia and the cross-border market. We continue to build and drive the growth engines that we have put in place, and M&A remains integral to our strategy. The acquisition of Border Express announced yesterday is strategic to our drive to further build scale in Australia.
As we continue to transform into a global enterprise with our portfolio of businesses, the corporate structure of the group will also evolve. We have reorganized the businesses into the strategic pillars of Australia, Singapore, and international, represented by the CEO of the world, with each business expected to drive their own operational decisions with greater efficiency. At the same time, we are reshaping the corporate center to add and drive value across the businesses and maximize the performance and valuation of the group.
At the same time, we will strive to be leaner and more effective. We are investing heavily in digital transformation to re-engineer operations across the businesses and functions, leveraging technology for efficiencies and underpinning our logistics services offerings for growth. This entails harmonizing our back-end systems, digitalizing our customer experience, and implementing new techniques like generative AI to facilitate business operations.
Finally, with the group's transformation and changing business and market circumstances, we are reviewing the capital structure as part of our strategic plan. This will include capital recycling opportunities where appropriate. I share these key guiding principles here to show the methodology behind the work that is currently being done. Certainly, more details will be shared when the review is finalized.
The shift in the revenue and earnings profile over the last few years reflects the repositioning of the group, the global logistics enterprise. With the expansion into Australia over the last few years, and now with the inclusion of Border Express, revenues from Australia are expected to contribute more than half of the enterprise group. The Singapore postal business brings to the table a reputation of excellent service standard. It is a utility business in a regulated environment, providing a national essential service.
As I mentioned before, we fully expect this business to contribute a positive yield to the enterprise. It must be commercially viable. From a financial contribution standpoint, as we grow to be a truly global enterprise, [Singapore] business will remain important, but will not be core to earnings. More importantly, it cannot be a financial drag to the group. With the financials stabilized, we are now working on a sustainable postal business. We are working closely with the regulator on a fundamental review of Singapore's postal service, which includes a review of the costs and operations, such as optimizing and automating post office services for greater cost effectiveness.
Meanwhile, there are some good results from our efforts to drive further e-commerce volumes. This remains our focus and strategy, given the competitive advantage of urban Singapore. E-commerce volumes picked up in the second quarter with higher customer volumes and new customer churn, offsetting the lower volumes in the first quarter. As the logistics landscape becomes more e-commerce driven and more environmentally conscious, and customer experience remains, we continue to innovate and transform this business.
You have heard about a POPDrop smart posting box and POPStop e-commerce stations, for example. We receive good acknowledgement. This showcases our efforts, and we will continue to further digitalize all these services. We will partner this industry in progressing new retail channels forward. Let's move on to the International business. Margins and profitability in the cross-border business have improved significantly with the decline in conveyance costs, new product offerings, new markets. Conveyance costs were down 24% over the first half and 42% year-on-year as freight rates continue to trend downwards.
Still higher than pre-pandemic, but certainly coming down. The greater focus on commercial offerings versus postal solutions is showing results, with new revenue growth of nearly 60% year-on-year, offsetting the reduction in postal decline. In the face of a slump in global demand, which has resulted in China exports contracting over the last half year, with a sector-wide weakening in volume. This business has been able to hold steady volumes on the back of new customers. We are quite pleased with that.
In addition, we are growing complementary synergistic benefits between the International business and both the Singapore and Australian market, where we run the last mile operation. For instance, over the first half, we have increased cross-border volumes into Australia by over 5x year-on-year. As we revamp the cross-border network, we have set up a new Shenzhen operation as part of the China hub to strengthen market activities on the ground. We continue to expand partnerships in various markets. Some of these announced previously through the MoU we signed.
We are implementing a digitally enabled 4PL model. The intent is to offer a digitally enabled end-to-end value proposition for shippers and customers in an otherwise highly fragmented e-commerce world characterized by multiple markets, cross-border network points, and partners. Cross-border 4PL digital platform is currently being built and tested. We will share more something. Move on to Australia, where we have some recent news.
We continue to build and scale our B2B2C integrated logistics network. The acquisition of Border Express, which we announced yesterday, for up to AUD 210 million, is a transformative effort for us. It is strategic to our Australian ambition and offers significant synergistic value to our business. This transaction is also immediately earning accretive to SingPost. At this juncture, I would invite Simon to share a bit more on the acquisition. Simon, would you like to share a little bit about what we did yesterday?
Thanks very much, Vincent, and good morning to everyone. We are very excited with strategic move in our journey of growth. Border Express is the sixth-largest pallet and parcel distribution operator in the market, with very strong B2B capabilities. The company operates in every state and territory in Australia, enabling interstate distribution efficiency and serving businesses in not just metropolitan areas, but very importantly, in remote regions as well. Infrastructure includes warehouses, regional centers, as well as its own fleet of vehicles.
The addition of Border Express significantly expands and adds scale to our network, providing nationwide coverage with meaningful sizable footprints across the landscape. The company generated revenues of approximately AUD 418 million in the recent financial year, with a pre-tax profit of approximately AUD 38 million. In a highly fragmented integrated logistics industry that is estimated to be over AUD 120 billion in annual revenue, annual revenues of our combined Australian business would be in excess of AUD 1 billion.
This brings us up the league to be amongst the top five operators in the integrated logistics market. We are confident about the multiple synergies that can be achieved from the combination of our capabilities, networks, and services. There are significant customer synergies and opportunities for operational efficiency and cost savings immediately to both FMH as well as Border Express. The pursuit of revenue and cost synergies will continue with greater pace, and we will focus on integrating all of our B2B and B2C businesses to drive growth. Thank you.
Just have two other points to make before I hand over to Vincent. First, I will give a quick update on Singapore sustainability. We continue to advance on our sustainability goals with a balanced focus on all aspects of ESG. These are core to our business operations, and we continue to embed our sustainability principles and efforts in the operations across all our markets. For example, in Australia, we have just recently added another facility to achieve five-star Green Star ratings for a total of four such properties. Finally moving on to the outlook and summary. I will offer some comments, bring you through what we see going forward.
Economic and business front conditions across the markets continue to be challenging as expected, and the uncertainty in the Middle East situation currently also present a risk to supply chain and conveyance costs in the region. While the strategic review is being finalized, we will provide more updates when completed. We have our strategic plans for growth and will continue to execute them. We are committed to growth and creating shareholder value with profitable businesses, including a domestic postal business that offers sustainable growth in Australia and Singapore. That is all I have to say. Thank you very much. I will hand over to you for the rest.
Morning, everyone. Good to see everyone again. I am happy to report a pretty strong set of operating numbers to you this morning. With the group's pivot to logistics and to the overseas markets in the last few years, the shift in revenue and earnings has been significant. About 85% of revenue is now generated outside Singapore, hence you can see the increased currency impact on the financials now. While this increase has increased our currency exposure, it has also provided us with additional new and diversified engines of growth.
You will see these new areas give us new opportunities that far outweigh the challenges that we face. The operating performance of our growth areas of Australia international market, international cross-border businesses are strong. The international cross-border business is now back to profitability this half, following the loss from last year. There were a couple of factors that did impact our business over the last six months. Aside from the currency movement, the post-pandemic normalization of freight forwarding revenue and profits were significant. This was expected, and we did highlight this in our earlier briefings as well.
In addition, there was a wider loss in the domestic postal business that has now been stemmed, and you have heard the CEO talk about this earlier. I would like to highlight a few lines in the group's P&L. While the group revenue operating profits showed decline, the currency-adjusted figures did increase. If you exclude the impact from the freight forwarding business, then our revenue would have increased by 2% and operating profit by as much as 45%. If you take out the freight forwarding impact, that is what it is.
I will talk a little bit more about that. Exceptional loss was significantly lower compared to the first half last year. We have recorded a SGD 21 million increase in the redemption liability FMH put option. Those arose last year with the higher valuation of [FMH] as a result of strong performance. At the bottom line, we recorded net profit of SGD 11.5 million versus last year's loss. In constant currency terms, underlying net profit was actually up 52%, and this is despite the decline in Famous Holdings earnings and the wider postal loss. I will go into a segment breakdown now. The segment breakdown helps to illustrate the significant impact the freight forwarding revenue decline on Famous Holdings.
The year-on-year swing here was about SGD 100 million. If you look at revenue, the year-on-year swing is about SGD 100 million. The freight forwarding business remains profitable. Although earnings has now contracted in tandem with the revenue decline. Because of this impact, we have separately reflected this to give some color to the strong underlying performance of the other business. The currency impact amounts to approximately SGD 50 million to revenue. There is a SGD 50 million decline and about SGD 8 million to operating profit. The relevant key currency here are the Australian dollar, as well as the Chinese yuan.
They appreciated by about 8%-9% against the Sing dollar over the last six months. Moving on to the segment. Constant currency terms, the logistic revenue operating profit, excluding the impact from freight forwarding business, would have been higher by about 4% for revenue and 26% for operating profit. Sea freight rates and volume in the industry are undergoing a period of adjustment following the pandemic period, and this has had an impact on Famous Holdings, which did record exceptional revenue and profits over the last two, three years.
That is now normalizing. Sea freight rates and volume have fallen significantly year-on-year. The operating performance of Australia business continues to be strong despite some softening in the logistic markets there. There were revenue pressures from lower fuel surcharges following the decline in fuel levies across the logistic industry over this period. We are starting to see that reverse recently with the Middle East development. With the new acquisition of Border Express, as you have heard, we can expect this market to continue to show significant growth potential.
FMH continued to grow with new customer wins in the 4PL business, and this helped to buffer the weaker performance of the 3PL segment. CouriersPlease did well outperforming the wider last mile delivery market with some good volume growth from new customer wins and larger share of wallet. Now move on to the post and parcel segment. The International business did deliver a nice comeback this half, as you recover from a loss in the first half of last year and back to profitability this half. This would have been significantly higher on a constant currency basis, and it was subject to some adverse currency movement, particularly by the Chinese yuan.
There were some strong improvement in the businesses. The improvement in margins and profitability was largely due to the decline in the air conveyance costs, which fallen 42% year-on-year, and then the shift in product mix to a more commercial offering, giving us better margin, better outcome. This helped to offset a wider loss in the domestic postal business. Volume of letter mail continued to decline, was down by another 3% in the first half.
Operating costs of this postal infrastructure, such as the post office network, continues to be high and have dragged the domestic postal business into the red. As mentioned earlier, with the postage upgrade now implemented, the domestic business is now expected to be profitable from the second half onwards. Moving on to the financial position. The group's financial position remains healthy. Liquidity ratios such as current ratio, quick ratios are stable. All the businesses are generating positive cash flows, so that is good.
As part of the strategic review, the capital structure, the dividend policy are concurrently being reviewed at the same time as we continue to transform and invest in this strategic niche. We will continue to explore some capital recycling opportunities with potential divestments of non-core businesses and assets. For the first half, interim dividend is maintained at SGD 0.0018 , equivalent to 30% of underlying net profit, so similar to last year. Thank you, and I will hand this time back to Selena.
Thank you. We will now open the floor for Q&As. Do raise your hand and we will pass you the mic.
Thanks management, and thanks for taking my question. Just two from me. Firstly, can you help us understand the magnitude of operating profit changes in domestic post and parcel business on a year-on-year basis? How has the volume impact been since the implementation of new postage rates, and how should we think about the overall post and parcel segment profitability in the second half? Second question is on the acquisition of Border Express. How should we be thinking on the revenue and cost synergies here in Australia after the acquisition? Looking at this particular entity's margins level, it seems quite high, seemingly at high single digits, EBIT margins. Can you explain a bit more on the business model here, and is this level of margins sustainable for the acquired rate?
I will take the second one slowly.
We reported losses in H1. The likelihood is based on the kind of upgrade that we are seeing and based on some degradation of [EBIT] per CAGR in the last couple of years, we do see that this upgrade will give us an uplift that will bring us into profitability. The scale of that, I think at this point in time is not for me to say, but what I want to just share with you is that we do all see ourselves at least minimally breaking even or at least becoming profitable in H2.
I think what will also help is that the e-commerce business, based on the whole post and parcel business that we have put out as a strategy to attain financial sustainability with the new customers coming on board that we have had in the last couple of months. I think this will also help to elevate some of the current [EBIT] decline that we have anticipated. I think looking at H2, we do see a positive outlook for H2. I think what is important here is H2 is generally our stronger half, given this is the campaign season, especially for Q3. We do think that we will end off pretty strongly for H2-
When highlighted, and clearly having a postage adjustment is not the be all and end all to the sustainability question we have around the postal business. Today is much needed to address the right cost of the business, and the ability to get the approval around such a large quantum of increase to how important it is to us. As we mentioned, it is a much needed piece of relief for us on the postal side. We continue to work on cost levers that we have. The discussions continue with the government around the fixed cost network of running post offices.
What else can we do to make this relevant and sensible for the population, while addressing the cost effectiveness? We also will be looking at the growth in the e-commerce segment, which came out of COVID last year. Volumes were a bit soft. Hopefully this time around, they will be better. So making some inroads there with wallet share, market share, hoping that will be helpful for what we do in [Australia] A lot remains to be seen, but it is a show of the commitment, the desire to get to what I said before. If this business cannot be a drag, it must be financially sustainable. Doing everything we can to make sure that is the case. As we acknowledge, it is also not just one-sided. It is something we will work together with the rest of the ecosystem, government. Simon, over to you.
Yeah. Okay. The question regarding Border Express was around obviously the synergies within the group. I think as a starting point, we need to acknowledge that Border Express standalone is a very successful business. It has really benefited from a strong management team that's extremely disciplined and has got deep expertise in the transport space. I think that when you look at the business, even without potential synergies across the remainder of the group, it's still very attractive to us. They could have sold their business. There were multiple parties that were interested in the business, but the founder, he's 93 years old.
Obviously, his legacy is very important, and he wanted to ensure that the business was left with or sold to a party that had a broader strategic plan that was going to take the business to the next level. He really bought into our plan, which is a lot of the reason why we were successful in the acquisition. What it gives us and our strategic rationale behind why we have been interested in Border Express is the 4PL business being asset light. As we continue to grow, we've always got two key risks that need to be managed.
One is the risk, our technology obviously needs to be secure and stable and scalable, which obviously we've invested heavily behind that. Secondly, as we continue to grow, we are soaking up more capacity in this market. We definitely need to have a network where in the event that any one of our existing carrier partners was to cease operations, go into administration, et c. We've always got a place to put our volume so that we can ensure that we're meeting our customers' KPIs.
Border Express gives us, as I mentioned, they're in every state and territory, deep regional capability, strong management team. It gives us this key risk mitigant. Then there's obviously the synergy. Currently the 4PL business probably has about 2.5% of its volume with Border Express. We anticipate that, well, strategically, we never want more than 20% of volume in our existing transport companies to come from the 4PL business.
They need to sustain in their own right. There's obviously quite a bit of growth that we can see going from 2.5% to about 20%. That's obviously going to unlock quite a bit of synergies. We anticipate that can happen pretty quickly. There's all the other obvious synergies across supplies in tires and fuel, et c. It's really quite exciting for us from that perspective. Yes, it's definitely going to be a very key part of our broader group and how we grow moving forward.
Thanks, Simon. Hopefully that gives you some color. Simon, did you get the question from [Casey]? The question was about the margin from Border Express is really attractive right now, and do you expect that to be going forward?
Yes. Sorry I missed out that one. From our perspective, we see that as appropriate. That margin for a well-run transport company, that's what we think is around benchmark. I think saying that it's very strong, as I said, it's probably on par with where well-run transport companies are, specifically when you have regional capabilities.
So capability into country, you can command a high yield, and Border Express certainly has that. If anything, we will look to obviously improve upon that through leveraging spend across the group, across suppliers, as I mentioned. But we don't certainly see this as being something that's emerged out of COVID. This is just from a very well-disciplined management team that prices accordingly and has great service and can charge for it.
Hopefully that gives some color. If I can just add a few more comments to what Simon said. Clearly the strategy for us in Australia isn't to buy up just independent businesses and run it as they are. Clearly, the strategy is to create and to integrate the business that we have. And the way we see it is, as Simon has eloquently mentioned, the Border Express piece is probably the biggest sizable 3PL that we have acquired to date. That then allows us to look at the integration prospects across the group. The synergies are, everywhere you look, you'll see some synergies.
Not just the revenue synergies, there's cost synergies. Even the procurement synergies. When you run a fleet, there's upwards of SGD 1 billion of combined revenue. That does give us a lot of ability to start to restructure some of the things that we do when they are otherwise run very independently. Moving forward, there's a lot more of that prospect for us. There's also this completeness of the supply chain capabilities across the whole value chain that we are starting to put together.
As you can imagine, between the different formats of delivery, it's truckload, less than truckload, it's pallet, it's carton, even down to even CouriersPlease. Now with the regional network that Border Express provides us, that complete pretty strong solution. If I may, just to maybe give a bit more color around how that even impacts, say, CouriersPlease. If I can get Richard, do you want to say a few words between how do you see Border Express and CouriersPlease creating those synergies as well? So as to give a color piece to everybody about what we are doing here.
Thanks, Vincent. I think as Simon's identified, there are terrific synergies across the businesses that we have already got. Specifically, that last point about being able to extract a better price and ultimately a better margin delivering into regional areas. I think in the Australian market, from a parcel perspective, that is certainly where Australia Post has been the default carrier and had that space for a long time.
So it gives us an opportunity to cost effectively expand our footprint into those areas and also leverage on the success that we have had in the first half in building share in the parcel market. So we have seen a significant uplift in share, and we are very keen to expand that footprint more nationally into some of those regional areas where Border Express has already got a very good presence and a very good service.
Thanks for the presentation. Just three questions for me. Just on the Border Express. Were they an existing, I do not know, user or customer of the FMH platform? Related to Border Express again, just from the customer's perspective, do they see this as, "Oh, this is going to help my business more. You can serve me better." Since you mentioned it is a strategic acquisition. But just from the customer's perspective, how important is it or how helpful is it to them?
The other question is on Famous Holdings. Can you just give some color of the profitability compared to pre-pandemic? Whether your cost structure is up a bit, the weakness in profit may linger a bit longer or as revenue taper down. Just some sense of the trajectory. The last one is just on the non-core. Where do I find the non-core in your balance sheet? Or just give some flavor what kind of non-core really.
Thank you. I will have Simon speak to the question on the existing relationship that Border Express has with FMH and what customer value it brings to the offering. Simon, you want to speak to that? Now I'll cover the non-core. Simon, you want to go first?
Yep. Certainly, Border Express has been well-known to our business for probably over a decade. We've had a great relationship with them, as has CouriersPlease. They supply services across a myriad of customers. They supply regional services, so regional deliveries for the CouriersPlease business. As I said, it's been a deep relationship over many, many years. I think, to your point about customer outcomes, that's definitely what we intend on delivering on, because we will put our technology into their customers.
As a result, we'll create better visibility across the supply chain, as well as more efficiency, which obviously we can then pass on appropriate amounts of that in terms of cost savings to our customers. Just because of the geographic dispersion of the Australian population, getting density in terms of any lane is pretty difficult. The more scale you have, the easier that is to achieve. That makes you more efficient if you manage it properly, which obviously drives down your costs, which means that you can offer a price point which is more competitive. Then couple that with the technology, the visibility creates better service for customers. That's part of the plan. Absolutely, you hit the nail on the head with that question.
Revenue is down almost half. Down about 40%, so that's SGD 100 million. That is largely predicated on retail. At its peak, I think we were moving container for about 10 times or around 1,500 per container per ton. It's now down to about SGD 100 million, SGD 150 million. It's significantly down. It's down by 90%. That is back to close to pre-pandemic level. The good thing working for us is two things. One is we are continuing to see very strong volume in there. We have been able to maintain the increased volume carried through from the pandemic.
But that obviously meant that the rate while we maintain volume, the absolute dollar amount we make down. We are impacted. While we maintain volume, we also maintain margin. For every container truck we typically— For every container, we typically make SGD 0.10 on the dollar. We do maintain that margin throughout both pre, during, and after pandemic, but the absolute number is now down. In terms of absolute dollar terms, we are actually better off than pre-pandemic. We do see that normalize that downwards, but it is still outperforming pre-pandemic level.
It is probably at the lower end of where we see it now already. Probably coming to normalizing, stabilizing. There is probably a little bit more downward pressure, but probably not going to be as significant as what we have seen over the last 12 months. Volumes are better, the margins are constant. Our net return compared to pre-pandemic, we are better off at this point, and we are seeing that stabilizing.
Finally, on your last question of what is non-core [inaudible] you will not find us being [on-call] But if I can ask everyone to maybe be a bit more patient with our strategic review, that will become quite obvious get to the end of it. However, as I said today, and I took the time to share a little bit about the key principles that guide us in the strategic review, some understanding or some color of how we go. If you look at the kind of segmental reporting that we are putting out, you see that it is very clearly focused on the market that we are operating in Singapore, the international cross-border market and share market, which is now very, very sizable.
That will be one key principle that guides us in how we define our logistics offering as we go forward. The second is the management team's commitment to working towards network business. In a sense, as I alluded to earlier, the international cross-border business has working very closely with the two key markets that we have, Singapore and Australia, to make sure that we flow goods through those markets. We are especially pleased with the progress that we have made in Australia since the year-on-year volumes have grown 5x. Now we are offering a lot more value through that network.
The way we see it is how do we put the bulk of our capability together to form that network of what we want to be going to the future. Clearly that expression, that definition will come at the end of that strategic review, so it will be a lot clearer. But you can start to see this. But even within the Australia market, we do not intend to run these businesses that we have separately. There will be really an integration effort to get the pieces all come together, and then we create all those revenue synergies, the cost synergies we spoke about.
That's how we intend to run. In a sense, we would like to be a pure play logistics company. So if that's the expression, and I say once again, a bit of the guiding principles I share here, but towards the end of the strategic review, this becomes a lot clearer. Then anything that's not within that universe would then be classified as non-core. And then we'll look at those second opportunities. Hopefully that gives some color.
Hello, management. So how is the restructuring going on, especially for the property segment side? Are you considering to dispose it?
Well, as I said earlier, when we get to the other end of the strategic review and we are very clear about what is core and non-core, then I think we can get to that view. But it's all part of the consideration right now.
Just a very basic question. Do you mind to explain very briefly on 3PL and 4PL, the biggest difference?
Given that the biggest 4PL business we have is in the Australia business, I will ask Simon to give his view of the 4PL business. Just as a description, what we have in Australia is a very large core business for the 4PL business. But at the same time, we have collection of 3PL businesses and the synergy business. I will ask Simon to talk about it. After that, maybe I will ask Li as well. Maybe you can share a bit about in your international cross-border business, how do you see 4PL that you are creating play to the advantage? Simon, over to you.
Perfect. I think I will start with 3PL because that is pretty easy to understand. So a 3PL operation is either a warehousing operator or a transport operator that essentially services multiple customers through its facility. So if you think about it in simple terms, if you have a warehouse and you have 20, 30 customers that you service out of one or multiple sheds, that would classify as a 3PL. So third-party logistics, same applies to a transport operator. When you are talking about a 4PL, a 4PL will use technology to essentially connect multiple 3PLs to a customer.
So essentially, you could have three, four, five, six different carriers or 3PLs, to use the other terminology, connected to a single shipper through a technology solution, and that would be a 4PL. So within the FMH group, efm Logistics is the 4PL. So it is our core business. It is our biggest by revenue and profit. It has grown by doing exactly that, having deep expertise in terms of understanding the different carriers and warehouse providers in the market, integrating them from a technology perspective, and then connecting them up to different customers, and then managing the service throughout in an asset-light manner. So does that answer the question?
Maybe I will just add in to Simon's point about 4PL in the international scale. So 4PL in the international scale, based on what we do today, we are doing a lot of cross-border e-commerce logistics. And that means that we have to create a multimodal way of transportation options for our customers to effectively and efficiently ship their products from destination point A to point B. So this allows us to actually think about what we have today with a lot of postal solutions on hand, plus some of the commercial offerings to connect the dots with the value proposition that we have is to have the asset-light transportation network created within Asia-Pac and also with a global reach.
If you look at what we've been doing in the past half year, we are starting to create the multimodal hubs in Shenzhen and also leveraging the connectivity in Singapore to create that push and pull effect. Also one of mandates to actually inject the volumes from the Far East market and the rest of the world through the two home markets in Singapore and Australia. In a sense, Australia and Singapore now is part of the 4PL network that within our control. Orchestration of the volume through origin to destination, leveraging multiple technology options and multiple vendors and partnerships throughout the network using our own asset and also partnership with others to create that 4PL network is basically what we're doing international.
The services that we offer compared to some of the competition. You pick one of the big three, the DHLs or FedExes or UPSes, those are 3PLs because they own their own assets. They provide their own solutions to customers. But we work with everyone. In a sense, the universe opens up, the network opens up for us to deliver that same consistent service. Does that make sense?
When is the Border Express expected to be completed? The estimated timeline.
It's early November.
We expect it to be completed by end of this calendar year. It won't be outside of the Simon, anything you want to add to that?
Well, no. Yes. I mean, I think to your point, we're targeting November 30th. But based on some of the work that needs to be done to complete this, there's obviously a risk that it slips into December. But our managements are working hard to get it done by end of November.
Thanks. Can you take us through a bit more on the development, in the IPP space? Notice that the mix of commercial solution has gone up quite significantly over here. Maybe you can describe to us in more layman terms how this commercial solution differs versus the previous postal model. Is the growth here mainly coming from new customer wins, or are you convincing some of these existing customers to switch in terms of this solution?
I noticed you mentioned digital 4PL here. Is it fully implemented on the IPP side of things already, or are we still in the process of rolling this out? Second question is on, I think, you mentioned in the announcement yesterday that you're also going to raise your stake in FMH from 88%- 100%. Is this the, what's it called, valuation-wise for the put option is already reflected in the first half? When can we expect this deal to be completed?
Li, do you want to take the first one on the IPP business? Give a bit more color about how you've been transitioning the business and also the 4PL business. It is 100%.
I think certainly, the IPP business has transitioned a lot to profitability in the first half of the year with the costs being constantly going down trading and us continuing to improve our overall offerings. In terms of commercial versus postal, I would say traditionally, if you look at just a postal solution, everything needs to come through Singapore. That is one single way, leveraging Singapore as the origin, put a postal label on, and you ship global-wide.
That is traditional postal model, but commercially allows us to actually open gates to various multimodal ways of transportation, including direct entry from point A to point B without going through Singapore, allows us to create a commercial solution for last-mile delivery compared to the traditional postal model. So that is the difference between commercial and postal. I am happy to report that, if you look at the results, our commercial revenue continued to grow within the IPP world at 50% year-over-year. Also, the volume of converting those traditional postal lanes to commercial continues to happen.
That means that we are not only acquiring new customers on new commercial solutions, the existing customers leveraging the previous postal solutions are also interested to try out new lanes leveraging commercial solutions. So the growth and also the margin improvement comes from both ends, existing customer base as well as new customer acquisition. In terms of 4PL, we are on track. We actually will be introducing new 4PL technologies, and we have been doing that for the last six months. More things will come, but obviously the 4PL system platform, combining with the processes that have been quite successful in Australia, is the role model that we are following. So more to come, but certainly this is on track.
Besides the point that Li has made. All this time and all these years, we use the term IPP, your postal product, the postal service that we have. That was the pre-pandemic, that was the predominant way we managed all these costs for the commerce items. That is no longer the case. Through COVID, clearly we had a massive impact when the Changi Airport was effectively shut, and then we had to pivot the business. So what we have now at this point in time is a postal call. I think that postal alliance that we have globally still provides that value in being able to open the doors and to enable that we ship to every country in the world.
However, we acknowledge that that may not be the best solution for every single country, every single lane. Case in point, postal services are probably superior if you ship to remote areas of a country. But in the metropolitan areas, there will be other commercial service provider that is able to give better benefits, better service levels, better cost, and maybe faster deliveries. So an example would be Australia, and that's the reason why the volumes are flowing through [SPs] and we're using that metro network for deliveries to all the capital cities in Australia. It's not the only way we do deliveries to cross border.
Clearly, we work with a multiple set of a network of service providers, postal being one. So if that's the case, then that 4PL model becomes highly critical because we need to be able to dynamically make sure that we get the best service levels from whoever is the working hub. So in the past, it was just pretty much postal. You don't need to have a 4PL. But as we transition to this world, it is highly critical that we are a lot more integrated with the network. So this becomes a platform business. That's what Li is pivoting towards. So you see the change in the profile. The numbers don't do justice to the kind of work that has been progressing.
Certainly, going forward, there will be more of that as the proportion of postal deliveries come down and the proportion of commercial vendors go up, and there will be an increasing set of commercial vendors that we pick up along the way. Not to mention the transmission methods, multi-modal, multi-hub approach now becomes possible rather than always being a bit more reliant on the base for that transfer. So hopefully that gives a bit more color. There were a lot more in there that I'm sure Li can share the thinking behind this and obviously for him. Vincent, you want to talk about the-
Yes. So first things first on the FMH put option, the valuation methodology has already been agreed at that end. Factored in the [FMH]. So we have picked up the latest valuation, the latest performance. That has already been accounted for in this set of items. So you should not see any further material changes to the P&L from this transaction happening. They're expected to complete within this calendar year as well.
It has always appeared in the balance sheet, so that confusion has always been there. Once we are 100% obviously this now flashes out, so you will not see it going forward.
I have just a couple of questions on Border Express. Firstly, of the AUD 210 million, whether it is possible for you to share the proportion that is funded by cash and borrowing. Secondly, what kind of interest rates are we looking at in terms of the AUD bank borrowing? Finally, whether we have a sense of what kind of market share FMH will hold in Australia post the acquisition. Thank you.
Vincent, you want to take the question on the funding? Simon can speak a bit about the market share going forward, as you see it for FMH.
First things first, a significant portion of it is funded by debt carried onshore. I should also highlight that at this current point, FMH as a group is very under leveraged. So it has very little debt. It only has a very small working capital line, so it is essentially almost debt-free. So it makes a lot of sense for them to leverage up and utilize this. It is a cash flow positive business that is anticipated that this is very accretive. Therefore, it is quite comfortable for them to put the leverage on their books. So it is largely funded mostly by debt, a significant proportion of it.
In terms of interest, obviously, I will not go into a great length of detail, but I would like to say that it does benefit from us being the owner group. So it does have pretty good rates at this point. I would say very close, if not better, than what you would typically get in an Australian network. We did leverage a lot of the relationships out of Singapore as well.
Okay. Simon, would you like to talk a bit about how you see the business in terms of market share and solutions offered to customers?
Yeah. No problem. As mentioned, it is AUD 120 billion industry. It is a pretty significant industry within the country, but highly fragmented. There is only one company that has in excess of 5% market share, and that is Australia Post with their AUD 9 odd billion in revenue. I think as a combined group, we will be in excess of AUD 1 billion. If you do the math, it is circa 1% odd of the market here. There is still quite a bit of opportunity for us to take market share and grow pretty aggressively.
Management, do you have any expected minimum credit rating? Because the acquisition happened quite frequently, I believe it should affect the credit rating somewhat. I think currently it is BBB, so they are-
Our commitment is to. That is our intent, and we certainly have been working towards that. We have been working actively to make sure that the acquisition is well-funded. These acquisitions are accretive. For all intent and purposes, it is meant to be positive to it. We do not intend to add on additional debt that it would not drag us down. In the short term, it is probably going to be, as we pay these businesses, it is probably going to be a little bit drag on the balance sheet, but it is a very near-term thing.
In terms of, I suppose, and last year, because of the circumstances that we are aware, we had one of the businesses in 18-digit losses. That obviously weighs down on them. This is now, as we said, commitment to get it to positive and the trajectory to get it to positive is done. It would not be a drag anymore. The hearing impact to the ratings will be far less. Okay. Anyone, last question?
I just saw the slide about the review of dividend policy as part of the inaudible. I'm just curious if you can share more color on this.
You would also note that yesterday we just announced this deal. As we move along with what we intend to do as part of strategic review, as part of the guiding principles as I spoke about earlier, there will be this transition, this pivot to logistics, this continued transformation. We will have to look at continued investment and acquisition. If we consider ourselves a logistics player, then we have to grow. We have to grow in that space. We have to invest. We have to continue to make sure we build and scale, and we will do it against the principles that we talked about.
With all those investments in mind, with all those commitment to grow as part of the strategy, it should also be a consideration in terms of how do we work towards that revision in the dividend policy. I don't want to prejudge it because it's all part of the review. At some point in time, this is a discussion that the board will have to have, and we will have to discuss this. But I think as far as the guiding principles are concerned, quite clear that if you're going to be a growth play and you need to invest, then how do we position the dividend policy in a smart band that gives that balance? Selena, thank you.
Thank you for joining us today. On behalf of management, I wish you a good day, and we also thank our viewers online.