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Singapore Post Limited’s Chairman Warns About Burning Platforms and Disruption

Singapore Post Limited (SGX: S08) has had its share of troubles over the past year.

Chairman Simon Israel addressed questions about the company’s future in its Annual General Meeting (AGM) held last Thursday. Israel, who took on the Chairman’s role only in May this year, laid out Singapore Post’s challenges.

The burning platform

Israel said that last year’s results showed that Singapore Post has a sound business. But, he also gave a warning for the future:

“Looking forward however, we need to recognise that our domestic mail business, on which we are still highly dependent, is a burning platform, subject to the forces of digital disruption.”

What’s interesting is that the phrase “burning platform” is similar to what Nokia’s ex-chief executive Stephen Elop once used. Mobile phone manufacturer Nokia was squaring up against the threat of smartphones when Elop made that statement. Back then, Elop had framed it simply: Nokia needs to make choice.

The handphone company could continue in its current feature phone platform and face the possibility of being consumed by flames. Or, it could “plunge into unknown freezing waters” and shift into smartphones.

If we follow the reasoning, it suggests that Singapore Post faces a similar choice. The mail and logistics outfit can choose to emphasize its traditional postal business (“burning platform”) or it could transform itself into an eCommence and logistics player (“uncertain freezing waters”).

Disruption may accelerate

Israel believes that Singapore Post has managed disruptive forces better than most postal services in the world. The US Postal services, for instance, has been running losses for many years.

But, Israel also warned:

“BUT – the risk of disruption to mail is real and disruption is rarely linear in nature.

As corporate Singapore becomes increasingly digital and as the Government leads us towards a Smart Nation, we will see a tipping point in the domestic mail business and an accelerating decline – this may well come sooner rather than later and we need to be prepared for it.”

The burning platform warning sounded critical, but Israel’s description on the pace of disruption sounded ominous as well. The chart below shows how much the traditional mail segment contributes to Singapore Post’s overall operating profit.

Singapore Post Operating Profit
Source: Singapore Post’s earnings reports and annual reports

Singapore Post’s operating profit is holding up well at the moment. But Israel’s statement suggests that change could accelerate. The profit picture above could change in a hurry. As such, he continued:

“It is in this urgent context that your Board committed the Company to a transformation to help us build new and alternative sources of growth and profits. This is needed to ensure that SingPost remains a sustainable business, is able to surmount the challenges ahead of it and continues to create value for shareholders in the long term.”

The statements above can sound troubling. But investors could also look at it as Singapore Post’s management being candid about the challenges that lie ahead. The question is what comes next. Israel sums it up concisely:

“At a high level our transformation is strategically sound. The challenge before us now is in the execution of the strategy. We need to:

  • Deliver on the business plans that supported these investments;
  • Evolve the businesses we have acquired into a truly integrated network;
  • Ensure we have a compelling value proposition for our customers; and
  • Create value for our shareholders in the years to come.”

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.