When Vincent Phang joined SingPost to take charge of its local business in 2019, he was well aware of the structural decline of domestic mail whose volume hit a peak a decade ago. Phang, who holds a post-graduate diploma in flight test engineering, figured there should be a “glide path” of seven or eight years, buying time for him to lead the company’s further doubling down on logistics.
Unfortunately, because of the pandemic, Phang is all hands on the yoke. The decline in postal volume has accelerated sharply and what was once the core business — and cash cow — of SingPost is now a loss-making unit. Phang, who took over as the group CEO in September 2021, now has a more pressing challenge on hand.
For its most recent FY2023 ended March 31, SingPost’s post and parcel segment suffered its first-ever full-year loss of $15.9 million, compared to a profit of $24.9 million for the year before, hit by a combination of higher costs even as volume declined at a quicker pace.
So unfeasible was the postal business that the government, which gave SingPost the monopoly rights to provide basic mail services — specifically, access to all letterboxes — has been asked to step in and review SingPost’s costs and operations, including hiking postage rates, to make this a more viable business to continue with.
Phang, citing the ongoing review, which is to be completed “well within” the current FY2024 ending March 2024, declined to share more details on what kind of adjustments will make sustainable commercial sense. He is clear, however, that the 165-year-old company he now leads is writing one of its more remarkable chapters. “It has been a very interesting time for SingPost,” says Phang in an interview with The Edge Singapore.
News of the strategic review, when first announced on May 11, briefly sent SingPost shares surging. Before that, the shares had dropped by 76.2% from their peak of $2.14 back in late January 2015. Year-to-date, the shares have fallen by 1.9%. SingPost shares closed at 51 cents on July 20, valuing the company at more than 80x historical earnings, and according to Bloomberg data, 23.2x forward earnings
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Complementary logistics
For now, Phang will not be drawn into discussing the quantum of the postage hikes, other than that SingPost is running through scenarios with the government. He is clear, however, that doubling down further on the logistics business — with plenty of complementary elements with post — is something SingPost wants to do.
Logistics is not new to SingPost, but up till just before the pandemic, this business segment had been a “fledgling” one and not contributing meaningfully to the overall bottomline, says Phang.
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The disruption caused by the pandemic meant SingPost had to bear with much higher operating costs for its domestic mail business. Unfortunately, it cannot just walk away as this responsibility of making last-mile delivery to the letterbox comes with the monopoly. “We’ve managed to serve the country, but that came at a great cost,” says Phang.
At the same time, the surge in e-commerce-related deliveries made it clear this had to be the “good balance” to offset the drop in mail, says Phang. Today, the logistics business is a major contributor to SingPost’s bottomline. Of the $1.9 billion in total revenue for FY2023 — a record — 70% came from logistics, versus just 38% back in FY2020. More importantly, logistics contributed 90% of the total operating profit. “I think the value of the pivot to logistics may not be as adequately recognised by the market,” says Phang. For FY2023, the company, as a whole, reported earnings of $24.7 million, down 70.3% y-o-y. It plans to pay a total FY2023 dividend of 0.58 cents. As recent as FY2016, it paid 6.5 cents per share.
It is easy to chart a new direction, but the tough work is in the actual implementation. Phang is careful to keep his feet grounded, literally. In an effort to better understand the nuts and bolts, as part of his grand ambition to be a regional or even global e-commerce supply chain player, Phang made some deliveries himself. “It takes six seconds to deliver to the letterbox but six minutes to the door,” he recalls.
The move to go big in logistics is already underway. Back in December 2020, SingPost took a 28% stake in Australia’s Freight Management Holdings (FMH) for A$58.9 million. The stake was eventually raised to 51% just over a year later and to a further 88% this March.
Phang explains the acquisitions were done in incremental steps so that SingPost can better refine the strategies to be deployed and how this business in Australia should be run. When asked, he says it is a “matter of time” before SingPost fully acquires FMH.
A reason it has yet to do so is that he wants to be “very disciplined” and not be pressured into making acquisitions just for the sake of growth. Thus far, he is encouraged by how FMH, a leading 4PL in Australia, has not only grown organically, but also made “disciplined, targeted” acquisitions of its own. Together with CouriersPlease, a franchised eCommerce and parcel last mile delivery expert, these two entities provide integrated logistics solutions, generating a revenue of $815 million, or 44% of SingPost’s total.
Beyond the current overseas focus on Australia, Phang says North Asia, with China as a huge exporting market, is another region SingPost cannot ignore if it wants to be a regional e-commerce logistics service provider.
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Alluding to SingPost’s Quantium Solutions unit, which has built up a “reasonable” Southeast Asian and North Asian footprint, Phang says that is a foothold he already has in developing further capabilities, entrenching the company deeper in latching on the growth.
‘Asset appropriate’ businesses
Unlike under the previous management teams when SingPost made a quick series of acquisitions, Phang is adopting a more careful and deliberate stance. He prefers to make alliances and partnerships, and work on the “competitive advantages” that all parties may bring to the table.
One recent example is an MOU signed on July 4 with Sats to explore a potential joint venture to operate an e-commerce transshipment hub in Singapore. “If you put two businesses together and work on the competitive advantages that each business brings to the table, I think we can achieve a lot more scale growth and over a shorter period of time,” he reasons.
Phang agrees that some of the previous acquisitions made under his predecessors ended up as futile attempts to grow, even though the broader direction of moving into logistics is similar. “If they don’t work out, we will rationalise them,” he says, citing SingPost’s divestment of its loss-making US subsidiaries in April 2019.
“I believe it’s very important, given how logistics have moved so rapidly over the last few years, to really take stock of our own stables. We have to look at what we have, whether it’s still relevant to the strategy going forward,” he adds. “But among the acquisitions that we have made, those that we have at this moment are all profitable.”
Given the more pressing hand he is dealt with, it is not good enough for Phang if the various businesses are merely profitable running on their own. He wants to take it a step further by asking how SingPost can get the best returns out of them.
In other words, if the businesses cannot help SingPost become a regional or global e-commerce logistics supply chain player, they will be deemed “non-core” and sold off and the capital recycled. What guides the review is instead whether or not the businesses are “asset-appropriate” for itself, its customers and its alliance partners, says Phang.
On July 17, SingPost announced it has appointed Merrill Lynch (Singapore) or BofA Securities to undertake this review. “We want to create options for us, so that we can be disciplined about deploying capital in a way that achieves the greatest return for our shareholders,” says Phang. “Ultimately, what we want through the strategic review is to ensure that every underlying business that we have within the group is appropriately valued,” he adds.
Despite the challenges of the letterbox, SingPost is not about to abandon the post and parcel business just yet. Phang reiterates that he takes his obligations as the designated postal licensee “very seriously”, and is looking for ways to reconcile a future where e-commerce might be the defining user experience for the group with the relevance of the postal-infrastructure postal system.
When pressed again for more details on the postage hikes — the basic rate for local delivery starts at 31 cents — Phang explains that this move is “essential and critical, but it needs to be accompanied by more radical, more fundamental structural changes” — a process that has now involved the government.
For example, issues to be addressed include whether SingPost can reduce the number of post offices, and to “recalibrate and review structurally the entire system” it now runs. “It sounds like a lot of big words, but there are tangible workflows behind it and we are looking at every individual element,” says Phang.
He adds: “We are focused on making the postal service relevant. We are focused on making the postal service sustainable by working in tandem with the developing trends in e-commerce deliveries. We are looking at the infrastructure being the element of delivery going forward, that helps to not just provide the customer experience but mitigate the cost increases as well.”
