Sunday, 7 January 2018

The Fall of Singapore Post since 2015

2017 was a fantastic year for all investors as prices went up across almost all asset classes. This was true for most investors in Singapore's stock market unless you somehow managed to pick up duds like.. Singapore Post.


At S$1.25 per share, SingPost's share price had declined 41.6% from its peak in January 30th of S$2.14. Frankly, it is quite amazing that a company with monopoly in mail management and a hand in logistics and ecommerce can fare this badly in a bull market that had picked up other logistics players like Global Logistics Property (GLP) and Poh Tiong Choon at rich valuations. 

This post details the amazing story behind the downfall of SingPost. Lets look back to 2015 to begin the explanation:


SingPost's woes started when Dr Baier abruptly resigned as CEO of SingPost in December. In hindsight, it was an amazing decision on Dr Baier's part because any half-decent board would probably have sacked him in light of the events since. 

That being said, SingPost did not have a half-decent board. Despite having more board of directors (12 in 2015) than bigger SGX listed Government Linked Firms like major shareholder SingTel, they had somehow managed "administrative oversight" over something as simple as declaring independent directors' interests in acquisitions. 

More will be shared on Alibaba and especially TradeGlobal later.

10 October 2016 - Ms Fang Ai Lian, accountant with extensive director background, comes on board as Lead Independent Director
10 October 2016 - Ms Kong Sau Wai Elizabeth, lawyer with experience in corporate transactions, comes on board as Independent Director
10 October 2016 - Mr Bob Tan Beng Hai, accountant with links to several government linked firms, comes on board as Independent Director

As expected, the Special Audit was particularly damning on SingPost failing to declare directors' interests in acquisitions. It was revealed that lead independent director Keith Tay had declared his lack of independence to the board on mulitple occasions. Nonetheless, he remained part of discussions. I can only conclude that the board did not deem it a priority to exclude him from discussions and inform shareholders of the same.

The Special Audit was also damning on SingPost's M&A practices. The following statement should be sufficient enough to explain:

"SingPost has no prescribed policy, process or procedure for the evaluation and approval of M&A transactions"

Frankly, this is ridiculous considering the amount and frequency of SingPost's M&A activity.

I would not recommend reading the Corporate Governance Review as it is full of consultant lingo with no value add apart from justifying their fat pay cheques. Professor Mak wrote a post "Deciphering SingPost’s Corporate Governance Review Report" which I recommend interested investors to read instead. Long story short, the review affirmed Professor Mak's initial concerns that corporate governance practices were sub-optimal.

New chairman Mr Simon Israel adopted recommendations from the Corporate Governance Review and began to refresh the board of directors with 3 new faces. 

SingPost ranked 14 on 2015's Singapore Governance and Transparency Index. Naturally, they finished 328 in 2016's edition.

1 April 2017 - Ms Lim Cheng Cheng, CFO of Singtel, comes on board as Non-Executive, Non-Independent Director
1 June 2017 - Mr Steven Robert Leonard, SGInnovate CEO, comes on board as Independent Director

Remember the acquisition of TradeGlobal back in 2015? After consecutive and continued losses since the acquisition, SingPost had decided to admit they made a huge mistake and book a massive impairment. The subsequent Summary Report alluded to previous criticism over weak board oversight over M&A deal and detailed how due diligence was poorly conducted. Most importantly, it recommended policy improvements on M&A dealing which were accepted.

SingPost added 2 more new directors and ended the year with 10 directors of which 7 are newly elected since 2015. There is now stronger shareholder alignment with SingTel and Alibaba holding 3/10 seats.

With these developments, it is hoped that SingPost can finally clean up the slate and end it's self inflicted leadership nightmare from 2015 to 2017.

Conclusion

Interestingly, SingPost is not the only postal company struggling with M&A. Japan Post had paid $4.9 billion to buy Toll Group in 2015, and had to take a $3.6 billion write down less than 2 years later in April 2017. 

Even more interestingly, if Toll Group looks familiar to you, that is because SingPost's new CEO hails from Toll Group. I guess the bright side amidst all this drama is that having been on the other side of the M&A game, Mr Coutts might be wiser towards not overpaying for acquisitions.

(Author is not vested in SingPost from 2015 till the time of writing)

This is neither a recommendation to purchase or sell any of the shares, securities or other instruments mentioned in this document or referred to; nor can this blog post be treated as professional advice to buy, sell or take a position in any shares, securities or other instruments. The information contained herein is based on the study and research of Dan O (“the Author”); is merely the written opinions and ideas of the Author, and is as such strictly for educational purposes and/or for study or research only. This information should not and cannot be construed as or relied on and (for all intents and purposes) does not constitute financial, investment or any other form of advice. Any investment involves the taking of substantial risks, including (but not limited to) complete loss of capital. Every investor has different strategies, risk tolerances and time frames. You are advised to perform your own independent checks, research or study; and you should contact a licensed professional before making any investment decisions. The Author make it unequivocally clear that there are no warranties, express or implied, as to the accuracy, completeness, or results obtained from any statement, information and/or data set forth herein. The Author, its related and affiliate companies and/or their directors, executives and employees shall in no event be held liable to any party for any direct, indirect, punitive, special, incidental, or consequential damages arising directly or indirectly from the use of any of this material.

4 comments:

  1. Nice write up on SingPost. They have failed so spectacularly. lol.

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    1. Frankly, it is a shame they are screwing themselves over at a time when logistics and ecommerce are growing in importance.

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  2. Interesting and well researched article about the saga for signpost. It is surprising that despite being rated so highly for corporate governance in 2015, they have fallen so far off. Not sure if the corporate governance review is even a credible or reliable source of information.

    This story will probably have a part 2. Not vested but staying tuned.

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    1. Seeing that SingPost got 3 new directors to lead the review, it is probably reliable. Looking at how damning it was, I guess it is probably credible too.

      You are right though, part 2 will be twice as interesting. I think they might have a massive turnaround but I also fear that they will follow Toll Group into disaster zone.

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