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Friday, May 26, 2017

Finally SPH has a new CEO

So SPH has finally changed CEO. Board issued a statement thanking former CEO Alan for his contributions though if we read the quote, it just states what he did without numbers to back it up. Reading between the lines.. it's perhaps the best they can do.

I know how strong SPH position was back in 2002 in the media advertising space. And my general take is that they have grossly underperformed their potential last 14 years. But we don't make decisions on feel but on facts. So let's see if the facts support my gut.

SPH from 2002 ( year Alan was made CEO) to May 2017 has returned about 60% including all dividends. That's a return of 3.3-3.4% annualized. To see if that is a good return, let's compare against 3 metrics. First GDP growth between the same period. Second, the return of STI in the same period. Third ad spend in Singapore between the period.

First, GDP for Sg has increased 230+% between 2002 to 2016. If we assume same proportion spent on advertising, it's clear SPH has failed to keep its proportion of advertising revenue dramatically.

Second, STI index was 1786 jan 2002 and 3219 now. And if we factor in the 3% dividend yield, we are talking about 122% returns. More than GDP and again more than double SPH returns.

Third ad spend in the period grew by about 50+% from 1.5b to 2.3b or so. Harder to find accurate data here. But that's a 53% increase in potential top line for SPH even if they just keep market share of ad spend. But in 2002, SPH had operating revenues of 903m and in 2016 it was 1177m. That's a meager 30% growth in revenues when market grew 50% and GDP grew 233%! And I am being kind to use operating revenue as it includes property.

So the data does show that SPH has underperformed badly under the old Mgmt. As a shareholder briefly via ETF in the period, I must say I would be so pissed with mgmt if I really just held on to my shares.

We have a good quality and well intentioned business and political elite in Singapore. So I am asking our powers that be who own SPH to start calling a spade a spade faster. Not so much faulting the polite face saving departure statement but more of how we can allow such underperformance to last for 15 years. The board should have taken action and removed mgmt earlier.

SPH Mgmt shares is 43.05% owned by govt or govt linked entities with a further 9.5% owned by Dbs which is 30% owned by temasek. The rest are the 2 local banks and Great eastern. So changing CEO is not outright but well within the temasek/govt ability/role.

I really worry for singapore inc if we continue to allow underperformance to be allowed to fester like that. Much of our future economy is tied to our GLCs doing well and growing well while we groom and build up more locally owned enterprises from private sectors. So temasek and Singapore inc needs to be tougher on our CEOs! 

We see other worrying developments happening with Singapore Airlines, Keppel,SMRT, Comfort and Sembcorp Marine who are all being tested by disruption. For now, I still feel our GLCs have a huge important role to play and have proven that our Singapore Inc model works historically but if they don't have high standards of Mgmt to ride on disruption and end up all following SPH path, then I think we might have to admit more private citizen ownership of corporates is a more stable configuration for our future economy. I hope not because so far there are clear benefits to having strong state ownership of GLCs in area of unemployment and stability.


Btw, many people are joking about the incoming CEO. I don't know enough about NOL situation or container logistics market to judge whether he did a good job in NOL and so whether is a good choice or not. But I do know we should hold him tightly to performance of SPH moving forward. It's a tough job to turn around a slowly sinking ship but he needs to figure out fast and reflate those revenue sails. 

5 comments:

  1. Sure they have underperformed against the market in general, but what's the performance relative to other print news operations? This is an industry in the throes of massive disruption worldwide.

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  2. You make a fair point. Most print papers have suffered equally bad or worst fates. Even schibsted recently had a big fall. But I feel SPH has less excuse because they are a monopoly here. So many advantages and such fat profit margins by law. Instead of leveraging their monopoly to invest into tech, they chose to invest into property. It's a safe choice but it's not what an entrepreneurial owner would have done.

    Now sph may have missed much of the entire digital boat. And in this process Singapore inc has missed out dramatically as they and Singtel were/are best placed to participate. That is the worry I have. That our glc structure makes us miss out on major wealth creating disruptive trends and also that our glc end up fading away. That would decrease our national wealth in a significant way. Hence my call for tighter board oversight and less cosy jobs for our CEOs. I am ok with perm sec and generals being CEO, but they must deliver real results.

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  3. well, you said it yourself, it is a sinking ship and maybe the ex-NOL knows a thing or two about keeping a boat afloat.

    The way I see it, the sinking is inevitable as long as those up there wants to keep their cushy pay and perks. The other major flaw in the system is how the Board is selected here - where those in the "inner circle" get invited in, friends, and friends of friends. How independent are the independent directors here? Much has to be done about this in this part of the world in the area of transparency in how the Board members are selected and the remuneration of the management positions. Unless of cos if you say the govt needs SPH as its mouthpiece regardless of profitability, then de-list the company and stop it from investing shareholders' money into non-media-related businesses like Nursing Homes.

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