To: From: Re: SingPost Competitive Position and Analysis Date: October 10, Introduction

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1 To: From: Re: SingPost Competitive Position and Analysis Date: October 10, 2013 Introduction Singapore Post (SingPost) established postal services operator. It provides domestic and international postal services, and is also a logistics provider in the domestic market with global service offerings to more than 220 territories/countries. Leveraging on its retail distribution network, SingPost also provides agency and financial services. SingPost remains dominant despite liberalization. Despite the liberalization of the basic mail services market in Apr 07, SingPost is still in a strong position to remain as the dominant postal services operator. Only it can hold the master-door keys to letterboxes provided by property owners and developers, including those in HDB estates, as dictated by the Info-communications Development Authority (IDA). With other advantages like an established distribution network, significant free cash flow, a monopoly over stamp issues and an entrenched brand name, SingPost is able to maintain its market share in domestic postal service despite slightly lowered legal barrier to entry. Moreover, basic mail is the only area of liberalization. Under the domestic mail segment, SingPost is likely to encounter increased competition in the direct mail business. Among the other four postal service operators (Exhibit1), it is possible that Swiss Post International (S) and WMG may compete for market share in direct marketing services. International mail (both inbound and outbound) is also likely to face greater competition, as IDA's intention is to develop Singapore as a regional printing hub and enhance e- commerce activities. Potential competitors are unlikely to compete aggressively in the domestic mail market considering that they have to utilize SingPost's access network since they do not hold the masterdoor keys. As such, there is limited pricing flexibility. There could be more competition in the international mail market but SingPost also has a joint venture with TNT Post and Royal Mail for the cross- border mail business. Logistics is a highly competitive business but SingPost has performed well in the past year by expanding its customer base in a variety of industries. (Exhibit 2) Competitive Forces Digitization posts challenge to the company. Development of Internet technology is replacing the use of physical mail as the main mode of correspondence and is causing a change in preference as business/government start to shift towards offering more online payment methods, e-billing and advertising using other means such as TV or the Internet. Hence, mail business is facing increasing challenges and recorded a decline in total domestic mail volumes for the first time in (Exhibit 3) Given Singapore government s effort to reduce the number of foreign works in Singapore, SingPost s remittance business may suffer from a drop in demand.

2 However, the postal sector can still be very much relevant in certain sectors. According to the UPU, while growth in urgent mail is stagnating in industrialized countries, there is still tremendous growth potential in emerging countries. (Exhibit 4) Direct mail is growing in both developed and developing countries. New technologies can be utilized as means of increasing the interconnectedness among countries and further integrating the postal offices around the world, therefore increasing the points of access for ordinary citizens. This creates opportunities for growth for SingPost. Capabilities Analysis SingPost has also been increasing its reach to consumers over the years. Its postal network (Exhibit 5) comprises post offices, stamp vendors, SAMs and postboxes. Given the nature of the business where convenience and easy access are among the main priorities of the customer, SingPost's vast distribution network ensures that it has the competitive advantage. Instead of merely relying on a cost leadership model, SingPost places great emphasis on service quality and worker productivity. In FY12, SingPost continued to surpass the Quality of Service in mail delivery set by the IDA by achieving more than 99% delivery by the next working day for mail posted within and outside the Central Business District (CBD). The group also achieved international recognition in the World Mail Awards (Quality category) on the basis of increased productivity, discounts to customers, lower incidence of damage and improved sorting accuracy and delivery. The high quality is continued to be ensured by productivity gain achieved through its continuous investment in new technology. (Exhibit 6) High quality coupled with cost control can help to maintain the market share. Recommendation Given the decline mail business in the domestic market, SingPost should continue its effort in diversifying into the regional market. The benefits of such diversification is corroborated by the growing share of revenue in overseas market. (Exhibit 7) SingPost should continue to strengthen its capabilities to provide fully integrated logistics solutions. For example, acquisition of self-storage providers can enable SingPost to further expand its self- storage business while offering synergies with our existing businesses in logistics and e-commerce. With this expanded service offering, SingPost will be able to better serve individual and SME customers. SingPost should also enlarge its e-commerce presence. It should continue its effort on providing manufacturers, brand owners and e-retailers end-to-end e-commerce solutions with full backend e-fulfilment services, from the e-commerce site to warehousing and pick and pack to final delivery. SingPost should also continue to extend its presence in the online retail space with its shipping and shopping portal vpost and luxury store Clout Shoppe.

3 Exhibit 1:Postal service operators in Singapore Postal Service Operator Spore Post Ltd Fuji Xerox Spore Pte Ltd G3 Worldwide Mail (Spore) Pte Ltd Swiss Post Int'l Spore Pte Ltd WMG Pte Ltd Principal activities Provides domestic and international postal services, and logistics services in the domestic market with global offerings Has a retail segment which includes agency and financial services Produces and processes documents, provides document and knowledge management solutions for businesses and products include advanced colour printers Provides international cross-border mail services Provides direct marketing, publication distribution, B2C dispatch of small items and business mail services Provides direct marketing, publication distribution, as well as print and production services Source: Company websites, IDA Exhibit 2: SingPost Financial Highlight Revenue Breakdown FY09/10 FY10/11 FY11/12 Mail 64.8% 59.2% 57.5% Logistics 27.4% 30.5% 32.1% Retail 7.8% 10.3% 10.4% Source: SingPost Annual Reports ( )

4 Exhibit 3: Mail volumes Source: SingPost Annual Report 2013 Exhibit 3: Access to postal service Source: UPU

5 Exhibit 4: SingPost s postal network Source: Company data Jan Sep Dec Mar Jun Sep Dec Mar Jun Exhibit 5: Productivity Source: Company data

6 Exhibit 7: SingPost s geographical revenue breakdown Geographical Revenue Breakdown FY10/11 FY11/12 FY 12/13 Local 88.5% 87.1% 80.9% Overseas 11.5% 12.9% 19.1% Source: SingPost Annual Report Exhibit 8: SWOT table Strengths Dominant position in postal services industry Stable operating and free cash flows Able to leverage on wide distribution network Weaknesses Slow growth in mail volume, the mainstay business Limited upside for postage rates which is also subject to IDA's approval Opportunities New initiatives and diversification of services to present more opportunities Potential boosts from assets Direct mail a market worth focusing but may be affected in this downturn Threats Pricing pressures from increasing competition Higher expenses from terminal dues revision Economic downturn to affect demand

7 Exhibit 9: Capability Analysis Mail Logistics Retail Process High quality The first Asian postal organisation to receive this international award for its innovation and service excellence High Quality with continuous improvement One-stop screening process Acquisition of General Storage Company Pte. Ltd, which strengthens capabilities to provide fully integrated solutions. More extensive collaboration. (e.gc.ashome service with two Myanmar banks) Expanded distribution channels. People Well-trained High Score on Customer Satisfaction Index developed by the Institute of Excellence at SMU (ISES) and the Singapore Workforce Development Agency Highly knowledgable staff who are able to utilizing the cuttingedge technology to improve productivity and quality of service. Growing expertise in retail business Technol ogy Innovative, tapping on the the trend of technological development Example:Innovative solutions like SMS Mail or confirmation for letterbox delivery via SMS; and Post-a-Card, a mobile application Continuous Technological improvement Example:ezy2ship, improved track and trace facilities, and the Electronic Proof of Delivery solution Initiatives to enlarge e- commerce presence Example:Clout Shoppe, an online luxury fashion destination Exhibit 10: Reference 1. SingPost Annual Report 2007/ SingPost Annual Report 2008/ SingPost Annual Report 2009/ SingPost Annual Report 2010/ SingPost Annual Report 2011/ SingPost Annual Report 2012/ OCBC Investment Bank Research SingPost s submission to Infocomm Development Authority of Singapore