SingPost to seek shareholder approval for sale of Australia business

SINGAPORE: Singapore Post will move forward with the sale of its Australia business by holding an extraordinary general meeting on Mar 13 to seek shareholders' approval for the divestment.

The company earlier announced on Dec 2, 2024 that it had entered an agreement to sell Freight Management Holdings (FMH) to Australia-headquartered Pacific Equity Partners (PEP).

The proposed sale at an enterprise value of A$1.02 billion (S$867 million) reflects the intrinsic value of the business, SingPost said in a Singapore Exchange filing on Wednesday (Feb 26).

It comes amid a strategic review of the national postal operator that started in July 2023.

Board chairman Simon Israel said that SingPost's share price had failed to reflect the value of its Australia business despite the company's efforts to engage its investor base.

"The market has never bought into the story about our growth in Australia," he told reporters at a media roundtable.

The board's concerns about an appropriate valuation of SingPost's business led to the strategic review, in the course of which the company received unsolicited interest to fully acquire FMH.

Mr Israel said if the company receives a credible and compelling offer, the board has a duty to consider it and put it to the shareholders.

After the proposed sale, SingPost will consist mainly of its Singapore and international business units providing postal and logistics services in Asia-Pacific.

"Given the materiality of the sale of the Australian business, the board has stated that the SingPost group will need to reset its strategy after the completion of the proposed disposal," the company said.

The board of directors will consider progressively divesting the group's non-core assets to pay down debt and create a pool of funds to reinvest, subject to its strategy reset, or to return to shareholders.

"In the interim, the group will consider investing in completing the transformation of the Singapore postal and logistics business into a sustainable business by supporting the growth of e-commerce logistics."

Addressing concerns about SingPost's viability after selling its profitable Australia business, Mr Israel said that challenges faced by its Singapore business require a "structural solution".

"If you look at where we are today, we have our traditional postal business still operating a very traditional model – sorting mail, delivering mail, providing post office services, et cetera.

"And separately to that, we have our e-logistics hub out in Tampines with full automation, sorting e-commerce and handling e-commerce (parcels).

"So this is an architecture that probably is not fit for purpose going forward, and that needs to be reworked. So we have to come to the right landing and agree this model with (the) government and take it forward."

Noting that SingPost was constrained by capacity in its local e-commerce logistics business, Mr Israel said the group was considering investments to increase capacity and automation.

He added that the e-commerce logistics field in Singapore was "quite fragmented", with opportunities for partnerships and "further consolidation" among players.

SingPost expects to receive about S$659.5 million gross proceeds in cash from the sale. This is about S$274.8 million more than the net asset value of the Australia business, according to the company.

The transaction is expected to generate gain on disposal of about S$289.5 million.

"The levered return on equity is approximately four times the SingPost Group's A$93.6 million equity investment in FMH over the last four years," the company said.

SingPost intends to use some of the proceeds to repay borrowings, in particular A$362.1 million in debt undertaken to acquire FMH. The board will also consider a special dividend payment.

Mr Israel said in a statement that the proposed sale delivers a strong return on the company's investment in Australia and "crystallises the unrealised value of the business".

FMH is counted among the top five logistics players in Australia by revenue, according to SingPost.

The Australia business contributed S$30.4 million to SingPost's total operating profit of S$51.2 million for the first half of financial year 2024/2025 ending in September.

The proposed divestment continues amid SingPost's recent sacking of three senior executives over their alleged mishandling of a whistleblower's report related to its international business.

SingPost has since appointed a new group CFO and acting CEO for the international business, while the search for a new group CEO is in progress.

Mr Israel said SingPost had not started a "formal search" as the appointment of the new group CEO needs to factor in whether the sale of FMH goes through, which would affect the resources available for reinvestment.

The ongoing strategy reset would also inform the kind of CEO that SingPost needs going forward, he said, adding that the review would be completed in 2025.

SingPost is in the final stage of renewing its board, and the new board needs to take ownership of the future strategy and future appointment of any group CEO, he added.

Asked about the three senior executives' stated intention to dispute their sackings, Mr Israel said no lawsuit had been filed against SingPost.

The group is also set to lay off 45 employees in a restructuring exercise, although it has said that the lay-offs were "not correlated with any previous incidents or whistleblowing reports".

SingPost's third-quarter operating profit fell 23.8 per cent year-on-year to reach S$21.1 million, according to financial results posted on Feb 20.

The decline was due to "ongoing macroeconomic pressures, including higher inflation, supply chain disruptions and a highly competitive environment".

Year-on-year revenue growth of 12.1 per cent in the third quarter was attributed to growth in SingPost's Australia business and property leasing outweighing lower contributions from its Singapore and international businesses.