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Singapore Post Limited on Dividends, Corporate Governance and the Search for a New CEO

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

Chairman Simon Israel addressed multiple 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, had this three things to share:

On the dividend policy

Israel believes that there is an urgent need to change Singapore Post into an eCommerce and logistics services provider. But, the transition will cost money and will involve higher risks. He said:

“As with most transformations, there are risks, notably around the acquired businesses and our ability to create value from them. There are lower risks in logistics and significantly higher risks in eCommerce.”

Additionally, the investments will take time to contribute in a big way to the bottom-line – Singapore Post might need to prop-up operational losses from eCommence start-ups during the transition. Israel also notes that Singapore Post will be losing rental income in the short term due to the redevelopment of the SingPost Centre. All these have financial implications.

As such, Israel said that the company’s current dividend policy might be reviewed:

“These comments raise the importance of ensuring that our dividend policy is sustainable. The policy needs to be reviewed to ensure there is a clear link to underlying earnings, so that it is sustainable through our transition and provides for future growth.”

Singapore Post will have to choose between investing in its transition and maintaining a sustainable dividend. Investors should note that Singapore Post also generated negative free cash flow in its latest financial year.

Singapore Post FCF Dividends
Source: Singapore Post’s earnings report and annual report

This could imply that there would be lower dividends in the future.

On Corporate Governance

Israel acknowledged that Singapore Post’s reputation has suffered due to the corporate governance questions raised:

“At the last AGM, a number of important governance questions were put to the Board which unfortunately were not answered fully and may have raised further concerns. SingPost’s reputation has since suffered from a very public crisis surrounding our Board governance.

We have seen the resignation of the Group CEO, a Special Audit, a Corporate Governance Review and resignations from the Board. Our share price reflects this.”

A special audit was conducted and recommendations were made. Israel said that all the Special Audit recommendations will be implemented, except for one. The exception here is the recommendation that directors who have served more than nine years should be considered as non-independent. In its place, Singapore Post will have a rule that no director will serve more than nine years.

Israel pointed out the board’s commitment to the recommendations in the statement below:

“We are fully committed to implementing these recommendations no later than the end of September this year. The timing of some recommendations is contingent on the appointment of new Directors before they can be put into effect. We will update you once the implementation is fully completed.”

On the new CEO

The resignation of Singapore Post’s previous group chief executive officer (CEO) Wolfgang Baier in late 2015 took most investors by surprise. Israel addressed this matter head-on:

“The [Corporate Governance] Review suggested that more could be done at the Board level to recognise and distinguish between the Board’s stewardship role and the role of the Group CEO and management in executing the Company’s strategy. I think we can assume that this may have influenced Dr Baier’s decision.”

The departure has left an important role to fill. Israel acknolwedges the urgency of the matter. In his statement, he said:

“The Board is well aware that any business without a strong leader for an extended period could lead to a crisis in the business and we recognise the need to get a Group CEO appointed as soon as possible.

Let me reassure you that this matter is receiving our fullest attention and that we have candidates in the process of due diligence. It’s important to remember these senior candidates have extended notice periods.

Realistically, given where we are in the process, we should expect the next Group CEO to take up the appointment at the end of the year. Until then, we will manage SingPost through our covering Group CEO and management committee.”

Israel believes that Singapore Post is in an integration stage, after years of acquisition-driven growth. This suggests that Baier is not likely to return to the CEO position.

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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.