SMU-13-0016

SINGAPORE POST: TRANSFORMING MAIL SERVICES IN THE

INTERNET AGE
Change is inevitable… extinction is a choice.
- Lim Ho Kee, chairman, SingPost1

Dr Wolfgang Baier, the Group Chief Executive Officer of Singapore Post Limited (SingPost),
was reading through the latest updates received from his division heads on the ‘Ready for the
Future’ (RTF) Transformation Programme. It was almost 10 months since the transformation
programme had been implemented in November 2011, and he was pleased to note that results
had been positive. The programme had been planned in response to the new challenges and
opportunities that had arisen in the postal industry.

In the last decade or so, most postal services around the world had witnessed a decline in
demand for their basic mail services with the boom in Internet-based alternatives, such as e-
mail and online bill-payment (refer to Exhibit 1 for further details). Bucking the international
trend, SingPost had managed to grow its total postal revenue from approximately US$244
million in 2001 to nearly US$325 million in 2011.2 Its careful preparation in anticipation of
global trends, its search for alternative revenue sources, and an increase in Singapore’s
population were some reasons why SingPost seemed able to outperform the industry worldwide.
However, a closer examination of the components of the mail revenue would show that
SingPost was not wholly immune to the global shift. Stamped mail, mostly from private
individual customers, reduced from 180 million units in 2002 to 130 million units in 2011.
Furthermore, rising global trends in market liberalisation had brought in new entrants into the
once exclusive postal markets.

SingPost had recognised that adapting to these new economic conditions was critical to the
survival of a modern postal service, and had appointed Baier as its group CEO in October 2011
to manage this transformation. One month later, Baier had initiated the RTF Programme, a 30-
month strategy to increase service volume by expanding into a regional network through
acquisition and investment in more efficient infrastructure, IT, and talent. The strategy was
based on investing and acquiring along five different ‘pillars’--mail, digital services, logistics,
e-commerce and retail and financial services--to increase revenue and fill the void left by
declining mail.

Although the results over the past 10 months had been encouraging, would the roadmap laid
out by the RTF programme enable SingPost to become a leader in e-commerce delivery
solutions? Was it comprehensive and effective? Had the organisation picked the right sectors to
grow in?

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1
As related to the authors by Joanna Yeoh, Vice President of Talent Management, SingPost, in an interview.
2
1US$ = S$1.23 as at October 2, 2012.

This case was written by Professor Reddi Kotha and Havovi Joshi at the Singapore Management University. The case
was prepared solely to provide material for class discussion. The authors do not intend to illustrate either effective or
ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying
information to protect confidentiality.

Copyright © 2013, Singapore Management University Version: 2013-06-25

 SMU-13-0016 Singapore Post: Transforming Mail Services in the Internet Age

The global postal services industry

The postal services industry in most parts of the world had since the late 1990s been plagued by
a number of factors that continued to erode its revenues. Since 2006, the industry had witnessed
a decline in average profitability, which could be largely attributed to increased internet
connectivity and its provision of lower cost substitutes, such as e-mail. Furthermore, many
utilities and banks had started offering online bill-pay and account statements in order to reduce
costs, which also reduced the need for postal mail. Tastes and preferences of the consumers had
changed, as they became accustomed to real time communication. Over and above, sweeping
market liberalisation had heightened the competitive landscape, especially in expedited parcel
delivery services offered by companies like FedEx and UPS. Revenue from core traditional
products of the global postal services industry had markedly declined (refer to Exhibit 2 for
further details on some key postal peer companies), and clearly a number of postal companies
across the globe were in trouble.

The drop in demand for basic mail also made postal companies focus on bringing operating
costs under control, and many postal services started scaling back. For instance, in 2011, the
United States Postal Service consolidated half of its processing facilities and laid off 35,000
employees to address its high operating costs (80% of which was labour costs).3 Increasing
efficiency therefore became a top priority.

However, efficiency in reducing costs was only one part of the solution, as mail volumes
continued to decline. It was recognised that to avoid obsolescence in the internet age, the
industry had to innovate its business model and diversify services to achieve revenue growth.
To begin with, despite decreased demand for mail services, parcel services were likely to grow
with the e-commerce market.4 Some postal services had thus embraced digital mail services.
SwissPost, for instance, offered mail scanning services so that customers could more easily
integrate their digital and hard-copy needs. 5 There was also a promising trend for other
specialised services within the postal industry, such as financial services. In 2008, 15 leading
postal financial institutions across the globe recorded an annual growth rate averaging 50% in
their postal deposits and savings accounts.6
!
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Singapore Post

Singapore’s postal service, with a history of more than 150 years, was administered by the
postmaster general of Malaya before the country’s independence in 1965. Thereafter, Singapore
took over operations of its postal services in stages, achieving full autonomy as the Singapore
Postal Services Department on January 1, 1967. In 1982, the unit merged with the
Telecommunication Authority, and was reorganised further 10 years later - ultimately resulting
in the creation of Singapore Post.7

On May 13, 2003, SingPost was listed on the Singapore Stock Exchange, and impressed
investors by doubling its share price within four years.8 However, the market liberalisation
process undertaken by the Singapore government affected its business, particularly when on
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3
Joan Ng, “Early delivery for SingPost.” The Edge, Malaysia, December 22, 2011,
http://www.theedgemalaysia.com/highlights/198267-early-delivery-for-singpost.html, accessed August 2012.
4
Ibid.
5
Ibid.
6
“Global Postal Services Market to Reach US$323.6 Billion by 2015, According to a New Report by Global Industry Analysts,
Inc.,” PRWeb, January 16, 2012, http://www.prweb.com/releases/postal_parcel_services/snail_mail_letters/prweb9110043.htm,
accessed August 2012.
7
For further details, refer to the Singapore Post Company Web site, www.singpost.com.
8
Kai-Alexander Schlevogt, “SingPost well-placed after reform,” The Business Times, March 14, 2007, p. 23.

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 SMU-13-0016 Singapore Post: Transforming Mail Services in the Internet Age

March 31, 2007, SingPost’s exclusive licence for receiving, collecting and delivering postcards
and letters expired.9 This was a service that had comprised 80% of SingPost’s revenue. Despite
this loss of revenue, SingPost was designated the Public Postal Licensee (PPL) and as such, it
retained its power to issue stamps and continued to be responsible for letterbox security and last
mile delivery.

After the IPO and prior to 2011, SingPost had successfully completed the first phase of its
transformation that comprised commercialising, starting new services such as financial services,
aggressively growing the mail business, increasing product lines and customer offerings, and
generating cash for growth. Chairman Lim Ho Kee commented on the changes:

The transformation of the company was a response to the impacts of e-substitution, lifestyle
changes, technology advancements and market liberalisation affecting the entire postal
industry over the past decade. Postal organisations, including SingPost, are struggling to
sustain a declining mail business. SingPost has been fortunate to have started its
transformation early, and we have benefitted from good GDP growth along with
10
population growth.

By 2011, SingPost was not only the designated PPL for Singapore providing domestic and
international postal services, but also a strong logistics provider, offering domestic and
international door-to-door delivery services, including express delivery (Speedpost) along with
warehousing, fulfilment and distribution services. SingPost owned one of the largest retail
distribution networks in Singapore with its extensive tri-channel network of post offices, Self-
service Automated Machines (SAM) and the online shopping and shipping portal, vPOST.11

When Singapore’s postal industry was completely liberalised, new entrants into the market
chose to focus on corporate mail only. SingPost as the PPL continued to have the universal
obligation to deliver letters to the far-flung corners of even the outlying islands of Singapore, at
the same price, regardless of distance and cost effectiveness (refer to Exhibit 3 for further
details on stamp prices). It also had to meet stringent Quality of Service standards. As
SingPost COO Sascha Hower elaborated:

A few years back, postal players around the world were trying to enter new liberalised
postal markets - but that has completely slowed down because postal services is considered
to be a declining market. Our postal price is one of the lowest in the world when
compared to the purchasing power of the people. So on the competition front, it is
unattractive for other operators to enter the market.

Drive to enhance operational efficiency

SingPost had a proven record in pushing for efficiency. For instance, in 1974 the postal service
had invested in a Culler-Facer-Canceller that could process 30,000 mail items per hour, and in
1983 it invested further in cutting-edge optical character reading technology that allowed 40%
of the mail to be sorted mechanically.12 In 2011, SingPost purchased a multi-purpose machine
capable of sorting 10,000 to 15,000 bulky envelopes and parcels per hour, a task that had
previously fallen on manual labour. 13 These initiatives among many others had enabled the

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9
Industry players interested in providing domestic and international mail services in Singapore had to first obtain a license from
the Info-communications Development Authority of Singapore (IDA). Hence, for example, DHL Global Mail was granted a Postal
Services Operator License from the IDA in June 2009.
10
“Singapore Post promotes Wolfgang Baier to Group CEO”, Post & Parcel, October 5, 2011,
http://postandparcel.info/42695/news/singapore-post-promotes-wolfgang-baier-to-group-ceo/, accessed September 10, 2012.
11
Singapore Post, “Corporate Information – Businesses” Singapore Post Company Website, www.singpost.com, accessed
September 2012.
12
Ibid.
13
Joan Ng, “Early delivery for SingPost.” The Edge, Malaysia, December 22, 2011,
http://www.theedgemalaysia.com/highlights/198267-early-delivery-for-singpost.html, accessed August 2012.

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 SMU-13-0016 Singapore Post: Transforming Mail Services in the Internet Age

company to control its staff costs, which had increased annually at an average of about 10%
from 2006-07 (refer to Exhibit 4 for further details on the operating performance).

These initiatives had also led SingPost to win many awards and accolades. In 2013, it was the
only postal company in the world to have won the ‘Express Mail Service (EMS) Cooperative
Certification Gold Level Award’ by the Universal Postal Union for its Speedpost Worldwide
Courier Service for 11 consecutive years since 2001. It was also named runner-up in the “Most
Transparent Company Award 2011” for six consecutive years in the SIAS Investors’ Choice
Awards. In 2012, SingPost earned the global Service Provider of the Year 2012 award by the
Postal Technology International and was recognized as Top Postal Agency in the World 2013
by Accenture.

The need for transformation

Despite investment in greater efficiencies, SingPost had since about 2007 been noting that
while there was continuous revenue and profit growth, the profits had started flattening out
(refer to Exhibit 5 for further details on the financial performance).

Woo Keng Leong, EVP/head of postal services, commented:

The lion’s share of our revenue had always been from mail. With the inevitable decline in
mail volumes due to e-substitution and lifestyle changes, it became increasingly evident
that SingPost was on a “burning platform” and that we needed to replenish a large part of
the revenue from mail with some other revenue sources.

Then in 2009, SingPost began feeling the impact of the 2008 global financial crisis. Revenues
were down 2.9%, and underlying net profit was down 3.2%.14 Following industry trends,
financial results for basic mail services were down 2.1% in Q4 2009.15 This was particularly
alarming as 80% (as of 2007) of SingPost’s revenue was generated from mail. On the other
hand, this period highlighted growing opportunities in other segments. Revenue from hybrid
mail, a service that combined elements of electronic and physical delivery, was up 8.7%.
Logistics services and retail revenue, too, were up by 5.5% and 6%, respectively, by the end of
the fiscal year. In March 2010, SingPost issued 10-year corporate bonds worth US$162 million
(SG$200 million16), giving it a war chest that put the company in a good position to diversify
services and expand mail services beyond its saturated domestic market.

In April 2010, SingPost acquired the logistics company, Quantium Solutions, which allowed it
to expand its regional footprint. It also began to concentrate greater regional growth in vPOST,
SingPost’s online shopping and shipping service. It went on to invest in logistics-related
companies as well as technology company Postea, which provided global postal and logistics
solutions. Greater diversification changed SingPost’s revenue composition. By the end of fiscal
year 2010, mail services comprised 64.8% of revenue. Further, the geographic distribution of
services increased from 0.3% of revenue being generated overseas to 11.2%.17 Increase in free
cash flow and improvements in revenue demonstrated that regional expansion and service
diversification was the right path towards improved performance.

In October 2011, there was an organisation restructuring at SingPost “to strengthen the

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14
Singapore Post, “Q4 & Full Year FY2009/2010 Results Presentation,” April 30, 2010,
http://www.singpost.com/download/AboutSingPost/ResultsPresentation/Q4FY0910ResultsPresentation.pdf, accessed September
2012.
15
Ibid.
16
1US$ = S$1.23 as at October 2, 2012.
17
Ibid.

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 SMU-13-0016 Singapore Post: Transforming Mail Services in the Internet Age

SingPost management as it broaden[ed] its horizons into new geographies and businesses”.18
Baier was appointed as the group CEO and director of SingPost. Baier had previously worked
for 10 years with the global managing consulting firm McKinsey & Company, specialising in
Western and Asian postal and logistics markets. He thus brought with him many years of
experience in the postal and logistics services industry.

A month later, to step up the company’s transformation, Baier rolled out the RTF Programme.

The “Ready for the Future” Programme

Baier commented:

SingPost started out transforming in the early 2000s, when it moved into financial services,
regional logistics and other areas. SingPost had two to three cost-cutting programmes, too,
which truly helped it improve the bottom line. However, when the board and I assessed the
status of the transformation, we agreed that while SingPost had done a good job, we need
to step up the transformation over the next few years - we need to accelerate to get ready
for the future. I painted out a scenario to show what would happen, with the current focus
and current effort (which is already quite a lot), to our business, if we apply the prevailing
market forces over a three to five years horizon. And it proved to be a very shocking picture.
In the post office, visits are coming down, letters are coming down. At the same time the
costs are going up. That was a real wake-up call - that we really need to do something. We
needed to accelerate our transformation. And that was the message behind the ‘Ready for
the Future’ programme. We need to get ready for opportunities around us, especially in e-
commerce, as the window for opportunities will only be open for the next two to three years.
We need to go out there now and double our efforts to get there.

The RTF programme was a strategy to position SingPost as a world-class leader in providing
mail, logistics, and e-commerce solutions in Singapore and Asia. It was conceived as a
reorganisation strategy to diversify revenue streams, and aimed at ‘staying ahead of the curve’
while building investor confidence. 19 Baier promoted the RTF programme by convincing the
board that the future would be bleak if things remained status quo. To further capture the
urgency of the situation, the expected results as at the end of fiscal year 2012 were shown,
which demonstrated that it would be difficult to grow profits. (As expected, actual net profit did
drop for the year ending March 31, 2012. Refer to Exhibit 6 for further details).

The two key objectives of the RTF Programme were first, for SingPost to defend its core
business, and second, for it to explore new innovative sources of revenue.20 SingPost aimed to
accomplish these objectives by a combination of organic and inorganic growth through
investment and acquisitions into new services and markets. It also realised that for the plan to
succeed, it required support from the board. Moreover, there would be a need to invest in
people, operations and IT, both within Singapore and regionally. The plan was that by 2015,
SingPost would be reorganized into five reinforcing and self-sufficient businesses. It was
believed that this strategy would increase robustness through diversification and provide more
avenues for growth in volatile economic times.

The value at risk was hence to be offset by a diversity of activity in the five ‘pillars’ of mail,
digital services, logistics, e-commerce, and retail and financial services.

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18
As quoted by Lim Hee Ko, Chairman SingPost in the “SingPost appoints Dr. Wolfgang Baier as Group CEO,” Singapore
Business Review, October 6, 2011, http://sbr.com.sg/transport-logistics/people/singpost-appoints-dr-wolfgang-baier-group-ceo,
accessed 10 September 2012.
19
Joan Ng, “Early delivery for SingPost.” The Edge, Malaysia, December 22, 2011,
http://www.theedgemalaysia.com/highlights/198267-early-delivery-for-singpost.html, accessed August 2012.
20
Kai-Alexander Schlevogt, “SingPost: Embracing change to deliver,” The Business Times, October 7, 2011, p. 27.

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 SMU-13-0016 Singapore Post: Transforming Mail Services in the Internet Age

Mail

The core mail business remained the most integral part of the company. The main source of
revenue for SingPost was bulk mail. Government agencies, banks, and other large corporations
were the most important consumers of bulk mail by units delivered. Despite the global trend
against use of postal services, the total revenue from SingPost’s mail business unit increased
from US$248 million in 2001 to US$314 million in 2011.21 The key external challenges were
e-substitution, international mail decline and cost-cutting measures. SingPost planned to protect
its mail business through better cost management and efficiency gains, which were critical to
creating more robust revenue. It sought synergies with acquisitions in logistics companies and
investment in new technologies. Given the domestic market saturation, SingPost recognised
that expanding revenue would require growth into a larger regional network, through joint
ventures and new innovative products.

Logistics and e-commerce logistics

The postal business faced very strong local and global competition, along with another key
challenge of dramatically reducing cross-border mail business. SingPost was able to grow the
revenues in this business unit from US$55 million in 2008 to US$141 million22 in 2009
primarily through the acquisition of Quantium Solutions, a company that had originally been
incorporated in 2001 as a joint venture with the Netherlands headquartered mail delivery
service provider TNT, the UK-based Royal Mail and SingPost. Quantium Solutions specialized
in logistics and fulfilment services to businesses within the Asia Pacific region, with a network
of offices in 10 countries within the region. It provided a range of value-added services such as
letter shopping (that prepared large volume mailings), data management and printing, mailroom
management, freight logistics, warehousing, fulfilment, international distribution and hand
delivery.23

The key initiatives proposed by SingPost specific to this pillar were to acquire logistics assets,
build IT infrastructure, and hire more talent. Partnerships were also important for expanding the
logistics networks because it allowed SingPost access to an expanded network. This was a very
important component of transformation, as it provided the means to expand into new markets
and create synergies with the other pillars. Further, Asia was experiencing strong logistics
growth due to e-commerce, and there was no established logistics player focused on value
offerings.

Retail and financial services

Given that the natural attraction of post offices was fading largely due to e-substitution and
mega malls, this business was to be improved by expanding the use of self-service kiosks,
building partnerships for more telegraphic transfer and remittance services, and creating mobile
payment platforms to assist small- and medium-sized enterprises. The retail and financial
activities would also have the benefit of being synergetic with e-commerce and digital services.
For the financial year ending March 31, 2012, retail revenue rose 3.8% to US$56 million24
mainly due to contributions from Clout Shoppe, an online luxury store. Agency services, retail
products and others, accounting for 26.6% of retail revenue, decreased 2.1% to US$15 million,
while financial services revenue, accounting for 31.4% of retail revenue, was steady at US$18
million.25

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21
1US$ = S$1.23 as at October 2, 2012.
22
Ibid.
23
Quantium Solutions, “About Us,” Quantium Solutions Company Website, http://www.quantiumsolutions.com/about-us.html,
accessed January 2013.
24
1US$ = S$1.23 as at October 2, 2012.
25
Ibid.

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Digital services

As Asia did not yet have an established secure digital mail solution, SingPost saw great
opportunities in this area. Further, document management and business process outsourcing
(BPO), which was also part of the digital service space, was growing in Asia. Thus, SingPost
developed Digital Services as a new business pillar during the financial year 2012. The
company’s fully owned subsidiary, DataPost, which provided a range of business printing and
mailing solutions, was made the digital services vehicle in Singapore and the region. DataPost
also acquired a 20.8% stake in the Malaysian company, Efficient E-Solutions, which had its
core business in business process outsourcing. SingPost planned to improve upon existing
hybrid capabilities and assets such as vBOX, a mail digitization service, through partnerships
with other hybrid mail companies and organizations. The main initiatives of improving hybrid
mail services were creating secure email and billing solutions, and providing document
management. !
!
E-commerce

Reduced demand in basic mail services was to be partially offset by the growing e-commerce
industry, which would result in more demand for parcel and bulky mail shipping. E-commerce
therefore provided an opportunity to increase revenue both in terms of postal services and e-
shopping. SingPost’s current e-services were to continue being pushed, and these included
Clout Shoppe, a SingPost-owned online shopping platform, and vPost, which afforded
consumers in Singapore a lower cost solution to engage in e-commerce activity operating in
overseas markets.

The results for the year ending March 31, 2012, showed that SingPost was on the right track
with its transformation initiatives gaining traction. Revenue had increased by 2.2% to US$470
million26 over the previous year. However, the continued decline in high margin domestic mail
had impacted the bottom line, and net profit had dropped by 9.5% to US$123 million.27 In the
key focus area of transformation, logistics revenue continued to grow with the group’s e-
commerce logistics focus in Singapore and the region resulting in revenue growth of 11.5% to
US$175 million. A large part of this increase was on account of the higher contributions from
e-commerce logistics activities in Quantium Solutions and Speedpost of US$114 million and
US$51 million (refer to Exhibit 6 and Exhibit 7 for further details on the performance).28
!

E-commerce and logistics become focus areas

Thus while continuing to invest in enhancing the efficiency of its basic mail services, which
was still the largest generator of the group’s revenue, SingPost also aimed to capture some of
the distinctive market opportunities that were available - particularly in the two key areas of e-
commerce and logistics. As Baier elucidated:!
!
We did a big strategy exercise in 2008-09, where we basically took a classic view to a
strategy decision about what can we do, and what areas we should enter. We scanned 80-
100 business areas, which started from shopping around for something completely new to
coming closer and closer to what we already do. Along with that, we also looked at success
stories of what other postal companies had done. We also looked at other industries that
had transformed over time. What became pretty clear to us is that we needed to marry

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26
Ibid.
27
Singapore Post, “Q1 &Full Year FY2012/13 Results Presentation,” July 30, 2012,
http://www.singpost.com/download/AboutSingPost/SGXAnnouncement/q1fy1213_presentationslides.pdf, accessed September
2012.
28
Ibid.

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certain capabilities we already have, our core strengths and values, with opportunity. And
when you look at the market opportunities of the future, and in Southeast Asia particularly,
it becomes pretty clear that e-commerce would be one of the leading transformations. E-
commerce is currently just the tip of the iceberg compared to what we see in the US and
Europe. E-commerce in Asia will be much more difficult because of the logistics component
and cross-border issues. And at the same time, it will also be much lower-value. So we said
that as a postal provider which is focused on the end-delivery of lower-value goods at the
lowest cost, we actually have a capability that we can build upon.

We want to build on our postal network and add on logistics capability. Because at the
moment we can deliver anywhere in the world with the help of our postal partners, but now
we want to add on key components such as track and trace, seamless integration into
websites, and the warehousing component. We also need to add heavy shipment capability,
so that we can take goods directly from the plants and deliver. Then we can go to an e-
commerce customer and enable it to expand in into Asia as we have the solution for it.

This is why e-commerce and the logistics around it became our two clear focus areas.

The global e-commerce market was huge, and it was expected to keep growing. Consultancy
firm J.P. Morgan’s annual report on forecasting trends for 2011 predicted that global e-
commerce revenue would grow to US$680 billion worldwide, an increase of 18.9% from 2010
revenue.29 E-commerce was essentially driven by a trend that has social media, urbanization
and e-substitution as the key underlying layers. Increasingly people were switching to e-mail,
which affected personal communication. This had also spread to B2B communication, and it
was expected that B2C, too, would soon pick up, particularly once people got more comfortable
with products such as e-statements.

SingPost wanted to become not only a regional leader in e-commerce logistics, but also a
trusted communications partner. That implied defending its mail business by bringing in
innovative solutions and getting into a new synergy with e-commerce. As Hower commented:

Growth is definitely in e-commerce. In India for instance, we have signed up over 100 new
e-commerce customers over the last year. This is a big chunk of where the growth is
coming from in the logistics side. In terms of our services, we have vPost, Quantium and
Speedpost – these are all like islands, which we are trying to put under the umbrella of e-
commerce. Our e-commerce business though has to be profitable and not just top line
driven (which is a very different approach from that of the p[rivate] e[quity] funded e-
commerce companies). We are coming from the mail and logistics side, and can optimize
our customer contacts. We already deliver to many Singaporeans every day. So we know
them, which is a great asset in the e-commerce world, as actual delivery is all done face to
face.

However, it had to be noted that the margins for e-commerce fulfilment and logistics were
rather low, particularly if compared to the higher margin that the traditional postal business
provided.

In Baier's view, the number one challenge e-commerce providers were faced with was the
logistics that needed to make it happen. Soon after the inception of their businesses, particularly
in some of the Asian countries, these providers would realise that they could not manage the
logistics aspect of their business. It was at this stage that SingPost aimed to come in and
provide a solution for this problem, and to put a plan in place at a certain cost. As Hower stated,
“Our current focus is very much B2C, looking at Southeast Asia, and also India”.

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29
Jyoti Rao, “J.P. Morgan: Global E-Commerce Revenue to Grow By 19 Percent in 2011 to $680B,” TechCrunch, January 3, 2011,
http://techcrunch.com/2011/01/03/j-p-morgan-global-e-commerce-revenue-to-grow-by-19-percent-in-2011-to-680b/, accessed October
2012.

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While there were generally larger turnovers in e-commerce, the risk itself was considered quite
manageable as companies would typically start off rather small, shifting a few packages a day.
And SingPost’s greatest advantage lay in the fact that it was regarded as highly trustworthy,
because as Baier said, “In e-commerce, if you cannot deliver and lose that trust – you are out of
the business”.

!
The key enablers

Baier recognised that no transformation strategy would work until it had the support of the
three key enabling groups – namely, human resources, IT and operations. In his opinion,
“Transformation is 99% people management, and only 1% is getting the right direction and
framework”. As a result, one of the key enablers for getting the transformation strategy in place
was to invest in getting a buy-in from people within SingPost. To this end, the first focus was
the people dimension, and Baier and his team made it a point to meet employees down the line.
Each month, the top management would visit a couple of post offices and delivery bases and
talk to the people there to communicate the message of the transformation programme, and also
to show their concern for people during the transformation journey. Further, to promote the
transformation message, the company developed a video presentation that was distributed
among all the employees, and also conducted a host of promotional events, such as football
games and bowling, where management would bond with ground staff.

Second, SingPost had also brought in new talents to strengthen its team and drive new
businesses. These included the head of logistics and head of e-commerce. Many were from
MNC backgrounds and from different geographies. Clearly the profile of SingPost as an
employer was also rising. As Joanna Yeoh, SingPost’s Vice President of Talent Management,
commented:

To help us in the transformation which includes regional expansion, we started using new
tools for recruitment in particular social networking websites, to reach a different profile of
job seekers. We have been successful in attracting some top talents to SingPost including
experienced regional leaders and graduates from Ivy League universities. Such new tools
allow us to engage directly with the candidates and speed up the hiring process as well.

Baier expanded on this:

While all candidates were first sourced internally, it is difficult to find, say, a world-class e-
commerce person in a Singapore postal company. So the idea is to bring these people in,
and over the next 3-5 years groom internal talent so that the next phase of recruitment
should be done internally. If that cannot happen, I would say that we have failed.

There were also a slew of leadership and training programs that had been put in place to
accelerate the transformation. As compared to annual performance reviews, the company now
carried out six-monthly developmental reviews.

Information technology was another powerful and important hub of SingPost’s transformation.
Given the company’s role as a knowledge-driven, trusted communication and e-commerce
provider, it was not surprising that IT was defined as a key pre-requisite for transformation to
enable all the five business pillars.

Finally, in terms of operations, it was clear that SingPost needed to be very cost effective.
Hence it approached its business model from a direct cost perspective, providing standard
solutions. Other than keeping a very strict watch on variable costs such as labour, the company

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SMU-13-0016 Singapore Post: Transforming Mail Services in the Internet Age

had also started outsourcing. Thus, for instance, there were customer service centres not only in
Singapore, but also in India and the Philippines.

The way forward

Baier commented:

While the outlook remains challenging, our transformation programme is gaining good
traction in new business areas such as e-commerce logistics. We are really excited with the
opportunities in e-commerce and m-commerce, and will be expanding our distribution
channels with mobile applications and more self-help services. We are also looking to
reach out to SMEs going forward. With the decline in domestic mail, we have to move even
faster to offset the impact on profitability.

In February 2012, SingPost launched and priced US$285 million (S$350M30) in aggregate
principal amount of 4.25% senior perpetual cumulative securities. It was expected that these
balances would be used to make acquisitions, finance new investments and fund its anticipated
capital expenditure and working requirements.

By November 2012, one year into the ‘Ready for the Future’ Programme, SingPost had made a
number of important milestones, mainly in the form of new hires, partnerships and M&A
activity. The purchase of Quantium Solutions, which provided order fulfilment outsourcing for
e-commerce firms, had been indispensable to expanding regionally. Revenue generated
overseas had increased to 15.4% as at July 30, 2012. The core of the strategy, to diversify
across products and geographies, appeared to be working. In the first quarter ending June 30,
2012, revenue from Singapore was at about 84%, and from overseas at 15.4%. However, the
next three years would reveal if the transformation programme goals were to come true on time.
Baier was optimistic that SingPost was on the right track with its RTF Programme. In his view,
this was a long-term initiative with a minimum five to seven years’ transformation, and as he
stated, “I am not too worried whether some initiatives go faster or slower than the others, as
long as I can see the overall mindset changing – which would make the change here
irreversible”.

Nonetheless, Baier continued to remain on guard. For instance, while the revenue for the first
quarter ending June 30, 2012 from the logistics pillar, which was a key focus area, had
increased 11.5% with an increase in operating profit of 54.2% from the year before31 - in
absolute terms, operating profit from logistics was only US$2.5 million. Further, he also felt
that there could be an improvement made in the pace of transformation. As he commented,

I wouldn’t change the strategic direction – so the ‘what’ is clear. But as for the ‘how’ – if I
had to start again, I would put even more emphasis on getting the people on board, and
request even more visible ownership for the managers one and two down the line to change.

The question remained: Would the RTF roadmap enable SingPost to become a leader in the e-
commerce delivery solutions?

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
30
1US$ = S$1.23 as at October 2, 2012.
31
Singapore Post, “Q1 &Full Year FY2012/13 Results Presentation,” July 30, 2012,
http://www.singpost.com/download/AboutSingPost/SGXAnnouncement/q1fy1213_presentationslides.pdf, accessed September
2012.

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SMU-13-0016 Singapore Post: Transforming Mail Services in the Internet Age

EXHIBIT 1: GLOBAL TRENDS IN MAIL VOLUME: BASED ON THE REAL GDP AND MAIL
VOLUME OF SIX KEY COUNTRIES – FRANCE, GERMANY, ITALY, SPAIN, UK AND US -
1983 TO 2011
!
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Base case scenario: Modelled on basis of GDP growth and broadband penetration as driver for
substitution rate

Recession scenario: Growth dip in 2012 and 2013 and low growth from 2013 to 2016

Acceleration scenario: Increased substitution rate after recession

Note: Volumes for 1983-2009 were actuals, 2010 – 2011 were estimated and 2012 – 2016 were
based on forecasts.
!
!
!
Source: The International Post Corporation and the Boston Consulting Group, Focus on the future: Building
a new compelling position for posts, June 2012, downloaded from
http://www.ipc.be/en/~/media/61278D6796F84EBC94C176D226A8AAE2.ashx, accessed January 2013.
!

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EXHIBIT 2: OVERVIEW OF SOME OTHER GLOBAL POSTAL COMPANIES

!

Postal Peers Recent Financial Performance

Australia Post FY09/10 profit after tax declined to US$92 million from
FY08/09 PAT of US$266 million32
New Zealand Post FY10/11 loss of US$30 million compared with a small
net profit of US$1.1 million for FY09/1033
Royal Mail FY09/10 loss from continuing operations of US$95
million in FY10/11 against US$517.7 million in
FY09/1034
United States Postal Service YTD 3Q FY10/11 loss of US$5.7 billion compared to
loss of US$5.4 billion for the same period in the previous
year

In countries such as Norway, Australia and Germany, as at 2012, the postal companies have
restructured, and are doing better than their peers.

Norwegian Post (“Posten Norge”)

Posten Norge AS was a limited liability company, fully owned by the state through the
Norwegian Ministry of Transport. Expansion within new product and market areas enabled
Posten to strengthen its traditional postal service. Posten’s operations were regulated by a
licence, with postal services under an obligation to deliver, and fundamental bank services to be
available in a countrywide sales network with at least one postal point in each municipality.
Posten’s group structure consisted of four divisions and three staff teams. The Post, Logistikk
[Logistics] and ErgoGroup divisions were market-orientated divisions, while the
Distribusjonsnett [Distribution Network] was an operating unit.

Posten went against the global trend by improving revenues by 2% from 2010 to 2011. The
declining revenue in the Mail division was offset by increasing revenues in the Logistics
segment. Its operating result (EBIT) was NOK 1,051m in 2011 which was 11.5% higher than
2010. Earnings before taxes were NOK 800m in 2011 compared with NOK 1,491m in 2010.
International presence, too, increased over the period, from 25% in 2007 to 27% in 2011.

Source: Posten Norge, “About Us,” http://www.posten.no/en/about-posten, accessed October 2012.

Australian Post

In October 2012, Australia Post announced that it had increased profit by 16.6% to AU$281 in
the second year of profit growth under the current “Future Ready” strategy. This was said to be
possible due to the company’s disciplined cost management, innovation in retail products and
services, and the continued growth in online shopping driving parcel delivery. Regulated mail
business losses widened to AU$148 million on the back of mail volume and revenue declines.
However, strong performance in parcels and retail produced profit of AU$546 million in the
non-regulated business, on the back of 8.5% revenue growth. The “Future Ready” strategy was
an AU$2 billion investment program in Australia Post's infrastructure, products and services in
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
32
1US$ = AS$0.98 as at October 3, 2012.
33
1US$ = NZ$S1.20 as at October 3, 2012.
34
1US$ = GBP0.62 as at October 3, 2012.

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SMU-13-0016 Singapore Post: Transforming Mail Services in the Internet Age

support of the digital economy. Australia Post was to invest more than AU$2 billion to
transform its national logistics network and create a universal digital platform. This investment
would ensure that Australian consumers and businesses had real choice and convenience in
parcel delivery, due to improved automation and tracking technology – which was significant
given that online shopping continued to grow in Australia, with consumers spending a total of
AU$11.9 billion in online retail sales in the previous year (an increase of around 22%, year on
year).

Total Australia Post results (in US$ millions35)

2012 2011 % Change

Income 5231 5088 2.8%

Operating EBIT* 406 336 21.0%

Profit after tax 287 246 16.6%

Dividends declared 218 177 23.4%

Net cash from 562 415 35.3%

operating activities

Segment Operating Results (in US$ millions36)

2012 2011 % Change

Regulated mail operating result

• Income 1963 1990 (1.3%)
• EBIT (151) (126) (20.3)%

Non-regulated parcel and retail

operating result
• Income 3136 2889 8.5%
• EBIT 557 461 20.8%

Total group operating EBIT 406 336 21.0%

Source: Australia Post, “About Us,” http://auspost.com.au/about-us/australia-post-increases-profit.html,

accessed October 2012.

German Post

Deutsche Post DHL was considered to be the world’s leading postal and logistics services
group, offering comprehensive services in international express, air and ocean freight, road and

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35
1US$ = AS$0.98 as at October 3, 2012.
36
Ibid.

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SMU-13-0016 Singapore Post: Transforming Mail Services in the Internet Age

rail transportation and contract logistics. Deutsche Post was Germany's only universal provider
of postal services and delivers mail and parcel in Germany and the world. The Group generated
revenue of US$68.8 billion37 in 2011, with about 470,000 employees in over 220 countries and
territories - making them one of the top 10 largest employers in the world.

From a government-controlled, deficit-ridden national agency, Deutsche Bundespost (1990), to

a profitable European mail and parcel service provider, Deutsche Post DHL became the global
logistics market leader, traded on the stock exchange. Deutsche Post AG went public in
November 2000. As part of its focus on its core competencies – mail and global logistics – the
group completed the sale of its stake in Deutsche Postbank AG to Deutsche Bank AG in
February 2012. The company's growth was founded on two strong pillars: DHL, which offered
integrated international logistics with a strong focus on quality and customer service, and
Deutsche Post, the mail business with its clear commitment to providing universal postal
services in Germany and new value-adding electronic services for the digital age.

In March 2009, ‘Strategy 2015’ was announced, that aimed at making the company fit for the
future. It established three key goals: to be the provider of choice for its customers, employer of
choice for its current and future employees, and investment of choice for investors.

Key financials (in US$ millions38)

2010 2011 +/-%

Revenue! 86672! 89103 2.8

Profit from operating activities (EBIT)! 3095! 4109 32.8

Return on sales2! 6! 8 -

Consolidated net profit for the period3! 4286! 1962 -54.2

Operating cash flow! 3250! 3999 23.0

Net liquidity (-)/net debt (+)! ,2331! ,1582 -32.1

Return on equity before taxes! 50! 26 -

Earnings per share! 4! 2 -54.3

Dividend per share! 1! 1 7.7

Source: DeutschePost DHL, “Facts and Figures,” http://www.dp-dhl.com/en/media_relations.html, accessed

October 2012.
!

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37
1US$ = Euros 0.77 as at October 21, 2012.
38
Ibid.

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EXHIBIT 3: STAMP PRICES FOR STANDARD, DOMESTIC LETTERS, FIRST CLASS MAIL
FOR INDIVIDUAL CLIENTS, AS AT 2011
(in Euro cents39)

Source: McKinsey analysis, Operators websites

!
!
EXHIBIT 4: SINGPOST OPERATING PERFORMANCE (INCLUDING STAFF COSTS)
FOR THE FINANCIAL YEARS 2001 TO 2012
(in US$ millions40)

500!
450!
400!
350!
300!
250!
200!
150!
100!
50!
0!

Staff!Costs! Total!Opera:ng!Expenses! Opera:ng!revenue!

!

Source: Singapore Post, Annual Reports from 2002 to 2012. For further details, refer to
http://www.singpost.com/investor-centre/annual-reports.html, accessed 15 September 2012.
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
39
1US$ = Euros 0.74 as at February 5, 2013.
40
1US$ = S$1.23 as at October 2, 2012.

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EXHIBIT 5: SINGPOST OPERATING REVENUES, EARNINGS BEFORE INTEREST & TAX

(EBIT) AND NET PROFIT FOR THE FINANCIAL YEARS 2001 TO 2012
(in US$ millions41)!

500!

450!

400!

350!

300!

250!

200!

150!

100!

50!

0!
2001, 2002, 2003, 2004, 2005, 2006, 2007, 2008, 2009, 2010, 2011,
02! 03! 04! 05! 06! 07! 08! 09! 10! 11! 12!
Opera:ng!revenue! 310! 303! 299! 306! 336! 354! 385! 391! 428! 459! 471!
EBIT! 109! 118! 105! 110! 125! 143! 149! 145! 165! 170! 151!
Net!Profit! 82! 89! 85! 90! 100! 107! 114! 120! 120! 122! 110!
!

Source: Singapore Post, Annual Reports from 2002 to 2012. For further details, refer to Singapore Post
Company Web site, http://www.singpost.com/investor-centre/annual-reports.html, accessed 15 September
2012.
!

!
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!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
41
1US$ = S$1.23 as at October 2, 2012.

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EXHIBIT 6: SINGPOST GROUP RESULTS: FY2011/12 P&L HIGHLIGHTS

(in US$ millions42)!

!
FY ending FY ending Percentage
31 March 31 March change
2011 2012
Growth in Logistics and
Retail; flat Mail
Revenue 460.0 470.3 2% contributions

Non-cash mark-to-market loss

on ELN;
lower recognition of deferred
Other income 42.7 41.1 -4% gain on IPR

Operating Investment in resources; cost

expenses 334.8 362.7 8% pressures

Operating profit 168.0 148.7 -11%

Share of Contributions from new

profit/(loss of ) associates
associates & JVs -0.4 0.6

Net finance costs 8.9 8.9 -10% Lower interest rates

Net profit* 130.9 115.4 -12%

Underlying net
profit* 121.6 110.1 -10%

* Profit after tax attributable to equity holders of the company; underlying net profit excludes
one-off items.

Source: Singapore Post, “Q4 &Full Year FY2011/12 Results Presentation,” April 27, 2012,
http://www.singpost.com/download/AboutSingPost/SGXAnnouncement/q4fy1112_presentationslides.pdf,
accessed September 2012.

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
42
1US$ = S$1.23 as at October 2, 2012.

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EXHIBIT 7: SINGPOST KEY PRODUCT CONTRIBUTIONS TO REVENUE AND OPERATING

PROFIT - THREE YEAR TRENDS FOR YEAR 2009 - 2012
(in US$ millions43)

Revenue

(Figures in brackets reflect the annual percentage difference over the previous year)

2011-12 2010-11 2009-10

313 313 293

Mail (0%) (7.1%) (-2.3%)

175 161 141

Logistics (8.6%) (14%) (140%)

56 54 54

Retail (3.8%) (0) (2.4%)!

Operating Profit

(Figures in brackets reflect the annual percentage difference over the previous year)

2011-12 2010-11 2009-10

108 115 107

Mail (6%) (8.5%) (-6.4%)

7 11 12

Logistics (-35%) (-5.1%) (83%)

8 8 8

Retail (3%) (-6.1%) (-12.3%)!

Note: The above figures also include inter-segment transfers.

Source: Singapore Post, Annual Reports from 2010 to 2012. For further details, refer to Singapore Post
Company Web site, http://www.singpost.com/investor-centre/annual-reports.html, accessed September 2012.

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
43
1US$ = S$1.23 as at October 2, 2012.

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