Foreign Talent’s investment decision causes massive write-offs in SingPost

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SingPost released its full-year results ended 31 March 2017 on 12 May (link: SingPost revenue rises 17.1 per cent for the full year, net profit falls 86.6 per cent on impairment charges). 

It announced that its net profit had dropped a whopping 87% from the previous FY’s $249 million to $33 million. This is mainly due to impairment charges (i.e, write offs) of $185.0 million coming from its US-based subsidiary TradeGlobal.

Impairment is an accounting principle that describes a permanent reduction in the value of a company’s asset. When testing for impairment, the total profit, cash flow or other benefit that’s expected to be generated by a specific asset is periodically compared with that same assets book value. If it’s found that the book value of the asset exceeds the cash flow or benefit of the asset, the difference between the two is written off and the value of the asset declines on the company’s balance sheet.

Chairman of SingPost said, “It is unfortunate that such a significant impairment to the TradeGlobal acquisition has to be made so soon after the transaction. A turnaround plan is being executed with the objective of recovering as much value as possible for shareholders.”

Apparently, TradeGlobal has significantly under-performed the business case which supported the investment decision into the US company 2 years ago in 2015. Instead of a projected profit of $9.4 million for the closing FY, it incurred a significant loss of $25.8 million.

Given the significant impairment of TradeGlobal, SingPost has formed an independent committee to conduct a thorough review of the circumstances surrounding SingPost’s consideration and approval of the TradeGlobal acquisition.

The committee has sought legal counsel to assist in reviewing the TradeGlobal acquisition. It will assess the adequacy of the financial and commercial due diligence performed in relation to the acquisition.

SingPost said it will seek legal advice on appropriate actions, if any, to be taken arising from the findings of the committee. The review is expected to be completed before Jul this year.

SingPost acquired TradeGlobal for $234 million

The US-based TradeGlobal was acquired by SingPost in Oct 2015 for $234 million.

TradeGlobal is a e-commerce provider for fashion, beauty, cosmetic and lifestyle products. Then SingPost CEO Wolfgang Baier said that the acquisition will turn SingPost into a global e-commerce player. “It is connecting the dots to become a digital company. We are a global player,” he told the media.

In another interview with Nikkei Asian Review, he said entering the US will allow SingPost to “cover two-thirds of the global e-commerce market” and position the company as “one of the global leaders in e-commerce logistics.”

However, barely 2 months after he announced the acquisition of TradeGlobal, Baier tendered his resignation from SingPost abruptly in Dec 2015. Several months later, it was announced that he had joined fragrance and cosmetic distributor Luxasia as its new CEO.

Luxasia said Baier’s appointment will strengthens its capabilities to reinforce its position as Asia’s trusted beauty brand.

Baier cashes out

And 5 months after he announced quitting from SingPost, it was reported that Baier sold off some 2.5 million SingPost shares in the market for about $4 million. After selling off, it was calculated he still held some 1.2 million shares at the time.

Baier was initially a management counsultant engaged by SingPost to review SingPost’s operations. But somehow, he ended up becoming SingPost CEO in 2011.

SIAS questions SingPost

It is interesting to note that with regard to the TradeGlobal acquisition and resignation of Baier, the Securities Investors Association of Singapore (SIAS) decided to question SingPost officials in a meeting between SIAS and SingPost in Jan last year.

SIAS President & CEO David Gerald asked, “The Trade Global deal, we believe, is SingPost biggest acquisition in the US. The acquisition was completed in a month. What due diligence was conducted?”

“With regards to Dr Baier’s exit, did he leave on his own accord or was he asked to leave? Did it have anything to do with the Trade Global deal? Did he express his concerns regarding this acquisition?”

“We also note the sudden removal of Ms Jocelyn Ng as Company Secretary. Did she also raise issues about the Trade Global deal?”

The SingPost Chairman was reported to have left the meeting assuring SIAS that SingPost would address each and every question posed “in due course”.

SIAS had called the meeting to relay its “serious concerns of SingPost shareholders and stakeholders”.

source: We want Minister Grace Fu to resign

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