Singapore Post Limited - MANAGEMENT REPLY: Did the CEO quit over meddling by the board?

Management has replied

The resignation by Dr Wolfgang Baier a few days after changes to the organisation structure were announced raises many questions.

THURSDAY, 24 DECEMBER 2015 - Singapore Post has been on many people's minds this month, and not just because it's the one time of the year they actually go to a post office to send off Christmas parcels.

The company has pledged to investigate corporate governance issues in response to articles carried in Wednesday's edition of The Business Times (BT).

BT reported in an article titled "SingPost made 'administrative oversight'" that the group said acknowledged it had not properly disclosed a board director's interest in a 2014 acquisition that the group had agreed to pay up to GBP7 mln or S$14.8 mln for.

The company clarified that none of the directors or controlling shareholders of the company had any interest, direct or indirect in the transaction, except for Mr Keith Tay Ah Kee.

Mr Tay is the Non-executive, lead independent director, and the second oldest serving director of SingPost, appointed in April 1998.

It was disclosed in the announcement relating to the acquisition of Famous Holdings Pte Ltd on in January 2013 that he is a non-executive Chairman and shareholder of Stirling Coleman Capital Limited.

Stirling Coleman Capital Limited was the arranger of the transaction.

Accordingly, Mr Tay, as reflected in Board minutes, had abstained from all voting by the Board of the company in relation to the transaction.

However, he has requested the Chairman of the Board for Special Auditors to be appointed immediately to investigate these issues thoroughly and to report directly to the Board and the Audit Committee.

Mr Tay has also requested that such report be made available for inspection by the Singapore Exchange, the Info-communications Development Authority of Singapore and other regulators, and that appropriate disclosure should also be made to shareholders and other stakeholders.

Meanwhile, the sudden resignation of Singapore Post CEO Wolfgang Baier has raised many more questions.

First, he resigned within a month after changes in organisation structure was announced.

Second, Singapore Post's executive committee held 14 meetings in FY15. This points to micro-management, which might have affected Dr Baier's strategies and/or targets.

The involvement of Egon Zehnder for the last two fiscal years, in reviewing the independence of those directors who have served for more than nine years, also raises the question why there seems to be no change in the board.

In 2015, SingPost was ranked 14th in the Governance and Transparency Index.

That's an improvement from 34th in 2014, 31st in 2013, 24th in 2012 and 17th in 2011.

It is undergoing lot of structural changes as it focuses on growing its ecommerce business.

But it is expanding so aggressively that it is unclear when it will break even on its various acquisitions.

SingPost continues to develop and expand its end-to-end eCommerce logistics business.

Capital expenditure is expected to remain high in FY16 due to the redevelopment of Singapore Post Centre, construction of the eCommerce Logistics Hub and continuing investment in the POPStation network.

It bought 30% of Hubbed Holdings Pty Ltd in Australia in June, while its freight forwarding subsidiary Famous Holdings Pte Ltd acquired 80% of Rotterdam Harbour Holding BV in the Netherlands in July.

Also that month, it announced Alibaba would buy a 34% stake in SingPost unit Quantium Solutions International Pte Ltd for S$91.7 mln.

Research Houses, OCBC and UOB Kay Hian, said before Baier quit that they have maintained their BUY rating with a target price of S$2.19 and S$2.18, respectively, due to recently announced M&As as well as redevelopment of Singapore Post Centre from FY18 onwards.

CIMB Research has maintained its ADD rating with a target price of S$2.04 after raising capital expenditure assumption.

We are waiting to see if the brokers re-update their targets to factor in any financial implications from the CEO's resignation.

Now for the full report in detail, starting with the company's most recent earnings announcement (Q2 FY16):

Revenue: +19.4% to S$263.2 mln
Profit: +38.5% to S$53.4 mln
Cash flow from operations: (S$37.3 mln) vs S$20.8 mln
Dividend: 1.5 cents per share vs 1.25 cents per share

Revenue grew due to contributions from new subsidiaries, as a result of continuing expansion in eCommerce and Logistics.

Excluding one-off items, second quarter profit decreased 4.8% to S$37.5 mln.

Investor Central. Asian insights for global investors. We ask the tough questions of Asian companies to which global investors need answers.

Question

1. Did the CEO quit over meddling by the board?

National University of Singapore (NUS) Business School Associate Professor Mak Yuen Teen raised questions about certain practices at SingPost in an article in the Business Times.

Among them, the number of executive committee meetings.

According to Prof Mak, the committee met 14 times last year, which raises the question whether the committee was co-managing the company with Dr Baier.

Irrespective of that, this raises the question:

Management Reply: "It has been a good five years and fulfilling professionally. I want to thank Chairman Lim Ho Kee and the whole board for their confidence in letting me be a part of shaping the SingPost of tomorrow." - Dr Wolfgang Baier, Group CEO of Singapore Post.

Question

2. Who called these meetings?

Dr Baier, the board, or the committee?

(Read the full story to get all 13 questions)

We thank Mr Jason Lim, Assistant Vice-President, Investor Relations at Singapore Post for his comprehensive response.

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