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SingPost says will sell struggling US businesses, but no details announced

MAINBOARD-LISTED mailman Singapore Post (SingPost) will sell off its struggling e-commerce units in the United States, in a board decision that was announced on Wednesday.

The planned divestment of Jagged Peak and TradeGlobal puts an end to a tale of woe that began in 2015, when SingPost made a play for both companies amid "aspirations of building an end-to-end e-commerce logistics network and technology platform", as it put it at the time.

The Business Times (BT) understands that no potential buyers, nor even bankers, have yet been lined up.

SingPost said in a statement that the disposal will not affect its businesses outside the US.

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It also said that it "believes its strengths and strategic competitive advantages are in South-east Asia and Asia-Pacific, which provide attractive growth opportunities".

The decision comes after a strategic review of Jagged Peak and TradeGlobal.

A Bloomberg poll of four analysts had indicated in March that SingPost was likely to either wind down or sell the businesses, which they expected would improve long-term profitability.

SingPost had called the US businesses "underperforming" in financial statements released in February 2019, and warned at the time of a risk of impairment to the units' book value.

Such a risk would not be unknown to SingPost, which had already taken an eye-popping impairment of S$185 million for TradeGlobal back in 2017.

An independent review later flagged issues around the due diligence for SingPost's original purchase of TradeGlobal. Both US investments took place under the watch of Wolfgang Baier, who resigned as chief executive in December 2015 and now heads homegrown cosmetics distributor Luxasia.

Current CEO Paul Coutts, who joined in mid-2017, told BT later that year that a disposal of TradeGlobal was not on the cards, as SingPost was "on track" with its turnaround plan for the US operations.

But the situation may have deteriorated since then despite turnaround efforts, which included initiatives to integrate the two US businesses, as well as investments in automation.

SingPost did not say, when asked, how much has been put into the rescue attempts.

Citing the early stage of the ongoing sale process, SingPost - which initially took majority stakes in Jagged Peak and TradeGlobal for US$184.4 million - also could not confirm to BT on Wednesday whether the companies would be sold together or separately, and at what asking price.

SingPost's e-commerce segment, which also includes SP eCommerce in the Asia-Pacific, has recently posted ballooning operating losses that weighed down the group portfolio.

The segment most recently recorded an operating loss of S$13.4 million, or nearly three times as much as in the same period the year before, for the three months to Dec 31, 2018, "largely due to the US businesses", SingPost said in its third-quarter statements.

The company also said that competition was intense, with customer bankruptcies on the rise.

It had previously been reported that Cincinnati-based TradeGlobal laid off more than 110 workers in 2017, after a major customer in the fashion retail industry filed for bankruptcy.

Mr Coutts said in the latest statement on Wednesday that SingPost "will step up our investment to better serve our home market in Singapore, as well as leverage our competitive advantages in Asia-Pacific".

Efforts closer to home have included a tie-up with Chinese e-commerce and tech giant Alibaba, which is SingPost's second-largest shareholder, with a 14.57 per cent stake, after Singtel's 21.96 per cent interest. SingPost is a strategic logistics partner for Alibaba, and the two companies have an end-to-end e-commerce logistics joint venture that targets the regional online retail market.

But SingPost has run into hurdles in its legacy postal services market in the Republic, where it is the only public postal licensee, with that licence renewed for 20 years in 2017.

Singapore regulators recently fined the company S$100,000 for not meeting certain quality of service delivery standards in 2017, and another S$300,000 for missing the mark in 2018.

SingPost ended flat at S$0.995 on Wednesday before the sale plans were announced.