December 19, 2015 10:00 pm JST
Company in focus

Will CEO's sudden exit hamper SingPost's e-commerce plans?

TOMOMI KIKUCHI, Nikkei staff writer

Wolfgang Baier

SINGAPORE -- The abrupt resignation of Singapore Post chief executive Wolfgang Baier on Dec. 10 got the city-state buzzing. Baier was seen as the driving force behind SingPost's expansion into e-commerce amid a decline in global mail volume.

     The shock was felt in the market the next day, when SingPost shares dropped more than 2% to close at 1.715 Singapore dollars. The decline continued for several days, with the stock finishing at S$1.665 on Friday.

     When Baier took the helm in October 2011, SingPost was trading at around S$1.03. He oversaw a climb to a record high of S$2.15 on Jan. 28 of this year, the same day the Monetary Authority of Singapore announced a surprise adjustment to its monetary policy.

     On Dec. 9, the day before the announcement of his departure, the stock closed at S$1.775, down more than 17% from the peak.

     Even so, few expected Baier would leave. "We were not privy to information [that Baier will resign]," Standard and Poor's analyst Annabelle Teo said. "It was a surprise for us."

     Another industry source said he saw Baier at an event just two weeks earlier. "It was a surprise for me, too," the source said. "I didn't hear any rumors beforehand."

     The reasons for Baier's resignation remain a mystery. But rumors circulating in the local media suggest he was in conflict with Lim Ho Kee, SingPost's chairman and independent director.

Baier's game plan

Baier's departure came as SingPost was crossing a milestone in its global expansion strategy. In November, the company announced it was acquiring two U.S. companies, TradeGlobal and Jagged Peak, for a total of $184.4 million. This is SingPost's first foray into the e-commerce logistics business in North America; it hopes the purchases will help it reel in global brands that want to sell products online in Southeast Asia. 

     For SingPost, the $168.6 million TradeGlobal deal was an unusually big splash. Rather than buying out large logistics companies to capture market share immediately -- as peers such as Deutsche Post and Japan Post have done -- SingPost started its e-commerce drive with a number of small to midsize investments. It bought into warehouses, freight forwarders and parcel pickup services. 

     The company has taken on a man-behind-the-curtains role in e-commerce -- handling everything from digital marketing and website creation to warehouse management, fulfillment and delivery through partner companies. Aiming to become a regional force in the e-commerce field, SingPost is developing a $131 million logistics center in Singapore to consolidate inventories from around the globe and send them off to various corners of Asia.

    Baier, who previously worked for McKinsey & Co., recruited e-commerce and information technology experts from the likes of and IBM. "We need to act like an e-commerce player to know what they really want," Baier said in a past interview with the Nikkei Asian Review. "We work like a startup," he said on another occasion.

     These efforts led to a strategic partnership with Chinese e-commerce giant Alibaba last July. The Chinese company became SingPost's No. 2 shareholder, after Singapore Telecommunications. SingPost's share price shot up after the news broke.

     Baier's e-commerce strategy had a positive effect on results: SingPost's annual revenue swelled around 60% and net profit expanded some 10% during Baier's tenure as CEO. The company posted a revenue of S$919.6 million in the financial year ended in March while net profit attributable to equity holders was S$157.6 million. 

     Now SingPost will have to push ahead with its e-commerce strategy -- and integrate the companies it has acquired -- without the chief executive who spearheaded it all.

"A rather onerous task"

Asked about Baier's resignation, a SingPost representative said it "will not affect Singapore Post's transformation plan to strengthen its position as a regional and global e-commerce logistics player." The company, the representative added, "will continue to focus on integrating its recent acquisitions and investments."

     SingPost announced that effective January 2016, Deputy Chairman Goh Yeow Tin will oversee post-merger integration as executive director, while Deputy Group CEO Mervyn Lim will handle the chief executive's responsibilities. Lim Ho Kee, the chairman, will step up his involvement and guide management, according to a SingPost news release.

     Some investors and experts, however, wonder whether the existing team has what it takes to lead SingPost through its transformation. Mak Yuen Teen, an associate professor at National University of Singapore Business School and a SingPost shareholder, expressed his concerns in a commentary published in a local newspaper. "One must question whether Mr. Goh has the necessary knowledge about the business, experience and time to undertake what sounds like a rather onerous task -- especially working alongside an acting group CEO who is also new," he wrote.

     Toru Yoshikawa, a professor at Singapore Management University, echoes Mak's worries. "Chairman Lim stepping up his involvement in running the company raises questions about his status as an independent director," he said. Lim's tenure since 1998 is too long to be considered independent by normal standards, Yoshikawa added. The monetary authority's code of corporate governance states that an independent director who has served on the board beyond nine years "should be subject to particularly rigorous review."

     "With long-serving board members," Yoshikawa went on, "the CEO may feel that the board has more power than it should, leaving management with little say in business execution, especially if the CEO is a foreigner."

Sizing up the competition

In the meantime, competition in the region's e-commerce logistics business is heating up. Large international players, such as Germany's DHL -- owned by Deutsche Post -- are stepping up investments in Singapore. Japan Post earlier this
year acquired Australian logistics group Toll Holdings for 6.49 billion Australian dollars (about $5.07 billion at the time), eyeing growing demand for cross-border, e-commerce-related logistics.

     DHL and Japan Post have far larger market capitalizations than SingPost and are backed by large domestic populations. The Singaporean market for e-commerce logistics is limited, given the population is only 5 million. And as with all postal companies, SingPost needs to strike a balance between investing in high-growth fields and maintaining its regular mail delivery service.

     SingPost is not the only Southeast Asian postal company branching out. Pos Indonesia recently announced a partnership with the local unit of online fashion retailer Zalora, through which it will provide return services at post offices. The state-owned Indonesian postal service also joined hands with, the domestic conglomerate Lippo Group's online mall operator, to install parcel pickup lockers in Greater Jakarta.

     Pos Malaysia, a listed associate company under DRB-Hicom, has started a new vehicle shipping service to cover lower earnings from its mail segment.

     S&P's Jabouley said that while it is too early to gauge the impact of SingPost's investments in new areas, its strategy of building up its e-commerce operations makes sense. "You cannot rely forever on a shrinking business," he said. But he also noted the risks that come with acquisitions and investments. The rating agency put SingPost on its CreditWatch negative list in early November, soon after the company announced a $100 million investment to develop a new shopping mall in the city-state.

     The investment was deemed excessive. The company's "growth strategy could affect its business profile and financial strength," said S&P in a press release. With the addition of new mall development, S&P said SingPost's capital outlays "could significantly exceed our previous estimates." Although SingPost's net profit margin of 17% is much higher than its peers like Japan Post's 3%, the absolute net profit amount is much smaller than its larger competitors. SingPost's net profit was about S$157 million in the financial year ended in March. 

     "The sudden resignation of Baier only adds to our concern," Jabouley said. He cautioned that SingPost might have a hard time finding a new CEO, especially given the nagging questions about corporate governance.

     Nevertheless, Jabouley expects SingPost to continue getting strong support from its major shareholders. He called a withdrawal of capital by Alibaba "unlikely."


Singapore Post Ltd.


Market(Ticker): SES(S08)
Air Freight/Couriers
Market cap(USD): 2,166.88M
Shares: 2,275.08M

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