8 things I learned from the 2017 Singapore Post AGM

In recent years, Singapore Post (SingPost) (SGX: S08) has been facing challenges regarding its corporate governance and the S$230 million acquisition of TradeGlobal – a loss-making e-commerce company based in the U.S. In May this year, SingPost reported a massive S$185 million impairment loss on TradeGlobal after admitting the acquisition had “underperformed”.

To make things worse, just days before SingPost’s 2017 AGM, a summary report on the review of SingPost’s acquisition of TradeGlobal was released by the law firm WongPartnership. The report exposed problems with SingPost’s corporate governance and the lack of due diligence surrounding the TradeGlobal deal.

With that in mind, I decided to go to the AGM to find out how SingPost plans to handle the issue and turn TradeGlobal around.

The AGM started with the announcement that Chairman Simon Israel was hospitalized and unable to attend the meeting. He pre-prepared a speech for shareholders that was read out by the Chairwomen for the AGM, Mrs. Fang Ai Lian. After the speech, questions were opened to the floor and shareholders started to fire questions regarding the summary report.

Here are eight things I learned from the 2017 Singapore Post AGM:

1. The majority of SingPost’s board now comprise new board members who will share their expertise in helping the company tackle its issues. Only Ms. Aliza Knoz and Mr. Zulkifli Bin Baharudin from the previous board remain. Personally, I think it is a good move to change the board members as shareholders had lost faith in the previous board due to corporate governance issues. SingPost has also appointed Mr. Paul William Coutts as its new Group CEO. He has been with the company for seven weeks and has 40 years’ experience in the logistics industry. The new board members were professional in handling the difficult questions posed by shareholders and it gave me the feeling that this is a board better equipped to handle the issues compared to the previous one.

2. The first questions started off with a shareholder questioning Ms. Knox and Mr. Baharudin regarding the summary report as they were members from the previous board. The chairwoman explained the summary report only contained key content to help shareholders understand the circumstances surrounding SingPost’s acquisition of TradeGlobal including observations made on corporate governance, due diligence, valuation, and risk mitigation measures. The report does not discuss individual roles and it should not be assumed that the report is directed at any individual including the directors present at the point of the transactions. Director Elizabeth Kong added the summary report focuses on the process surrounding the TradeGlobal acquisition and not the roles of individuals, which will only be contained in the full report. The full report will be issued to the regulatory authorities for appropriate action.

3. Ms. Kong explained the identity of the financial advisor for the acquisition cannot be disclosed as they do not have consent. But she assured shareholders the individual had no relationship with any of the directors at that point of time. A shareholder explained he was not putting the blame on Ms. Knox or Mr. Baharudin; he only directed his questions toward them because they were present during the acquisition and the only ones left from the previous board. Mr. Baharudin said there is a need for him to answer shareholder questions and he admitted, after much thinking, that the previous board had let shareholders down. He emphasized the decision made at the time was “right” and based on the information that was given. But now, obviously, some of the information was wrong. He further assured shareholders he had already subjected himself to investigations and queries by the new board members. If ever he or any former board member is found guilty, they will be held accountable for their actions.

4. TradeGlobal, which was acquired in 2015, recorded a S$185 million impairment due to disappointing peak season sales. Instead of an expected profit of S$9.4 million, TradeGlobal made a loss of S$25.8 million. This was due to several reasons: rising labour costs, delay in warehouse automation, challenges in the U.S, market, and the resignation of key managers. The company also lost two major customers that accounted 30-40% of total sales — one customer went bankrupt and the other decided to take its operations inhouse. SingPost Group CEO Paul Coutts revealed he had in-depth discussions with the CEO of Jagged Peak to implement a turnaround plan for TradeGlobal. (Jagged Peak is a US-based e-commerce logistics provider that SingPost acquired in 2015). The turnaround plan involves using warehouse automation to address rising labour costs and adopting best practices from Jagged Peak, which has an asset-light and technology-driven business model. He emphasised that there’s a lot of work to be done for TradeGlobal and it will time to turn around. He also mentioned that Jagged Peak is doing well in terms of revenue and profitability and owns leading-edge technology that can be transferred to other parts of SingPost’s business.

5. SingPost revised its dividend policy and intends to pay out 60-80% of its underlying profit, instead of an absolute amount which is unsustainable. In the past, the dividend was supported by the domestic postal business which has seen declining volume. To generate future sources of income, SingPost has made significant investments in ecommerce, logistics, and the redevelopment of SingPost Centre retail mall. These investments will impact earnings in the short term, hence the revision in SingPost’s dividend policy. The postal business faces many challenges and it may take several years before ecommerce contributes significantly to SingPost’s profit. The current dividend of 3.5 cents per share is about 66% of underlying profit for the year.

6. SingPost Centre is expected to complete in October 2017. The new mall will have 175,000 square feet of retail space which will test new concepts of combining both online and offline shopping. CapitaLand Mall Asia has been announced as the mall’s retail manager.

7. A shareholder shared that Alibaba is setting up a huge logistics hub in Malaysia and asked about its potential impact on SingPost. The management replied that the logistics hub is close to Singapore and will give them the opportunity to work together and leverage on each other’s strengths. Director Chen Jun, who represents Alibaba, explained that despite SingPost’s challenges, Alibaba increased its stake in the company because they believe Singapore has efficient infrastructure, rule of law, and is a good place for the long-term development of a logistics hub. He added that Alibaba also tries to integrate operations whenever they invest in similar businesses. For example, Lazada (which Alibaba has an 83% stake in) moved its logistics operation to SingPost Centre to take advantage of SingPost’s technology to support Lazada’s business growth.

8. Another shareholder asked the rationale behind SingPost’s number of recent share buybacks. The management replied the share buybacks are for its employee share scheme. Since June 2017, SingPost has repurchased 2,233,200 shares in eight tranches at S$1.275-1.37 per share. Notwithstanding the employee share scheme, I personally feel the share buybacks are a poor use of capital as I think SingPost is not exactly undervalued right now due to its declining profits and ongoing troubles. The capital can be better allocated elsewhere for a higher return.

Liked our analysis of this AGM? Click here to view a complete list of AGMs we’ve attended »

Victor Chng is an equity investor and co-founder of The Fifth Person. His investment articles have been published on The Business Times BTInvest section and Business Insider. He has also been featured multiple times on national radio on 938LIVE for his views and opinions on how to invest successfully in the stock market. Victor is also the co-author of Value Investing in Growth Companies published by Wiley, Inc. The book can be found in all major book stores worldwide and on Amazon.com, Barnes & Noble and Apple’s iBooks. On a personal note, Victor represented Singapore in the 2008 TAFISA World Games in Busan, South Korea and was the 2008 IFMA World Muay Thai Championships bronze medalist, kicking some serious ass along the way.

4 Comments

  1. wah siew

    July 28, 2017 at 9:00 am

    Thank you Mr Victor Chng for that enlightening report on SingPost after your attendance at their AGM. I am also an investor in SingPost but did not have the time to attend the AGM as I was away in Malaysia for a short vacation. After reading your summary, I felt like a fool to have invested 15000 shares on the recommendation of my “broker”. Thank you, once again.

    • Victor Chng

      July 28, 2017 at 7:22 pm

      Hi Wah Siew,

      Glad that you found the article informative. Mistakes are inevitable and I’ve made my fair as well. The important things is to learn from it and don’t give up. Happy Investing 🙂

  2. Jonathan Lloyd

    July 28, 2017 at 9:34 am

    Another good summary!

    My wife and I have both dumped our SingPost shares earlier this year and took a decent profit (we’d been shareholders since the IPO and had bought more over the years). The cut in the dividend and the dubious acquisitions were red-flags for me.

    However, there are other things that didn’t sit well with me at SingPost:

    1. I’m still mystified why SingPost has so many directors on its board.

    2. The US distribution centers (TradeGlobal) are going to face headwinds. Most Americans have never heard of AliBaba and Amazon’s “Fulfilled by Amazon” (FBA) program, and finding employees to work in their distribution centers could be a lot tougher or more expensive than most realise (especially as the US immigration is cracking down on illegal immigration). If they’re trying to do for eBay vendors what Amazon is doing with FBA it’s not working.

    The shares are cheap for a good reason. I’d continue to avoid at the moment.

    • Victor Chng

      July 28, 2017 at 7:23 pm

      Hi Jonathan,

      Thanks for sharing your thoughts. You are really sharp in spotting those signs early. Personally, I think SingPost has a long way to go to recover what they lost through this acquisition.

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