Commentary: SPH will need to clarify future plans to secure shareholder approval

Date: May 7, 2021

First published in Business Times on 7 May 2021

Singapore Press Holdings’ (SPH) announcement of its restructuring and hiving off of the media business into a company limited by guarantee has come as a surprise to many. For several years now, SPH has been reviewing and diversifying its investments. SPH had also undertaken strategic initiatives in digital content. But the media business has been on a decline for the past five years, with media operating revenue having halved during this period.

SPH asserts that being a listed media company provides some challenges. For example, the Newspaper and Printing Presses Act requires any acquisition of shareholding above 5 per cent to be approved by the Minister for Communications and Information.

This restructuring proposal seeks to serve as a long-term sustainable financial solution for SPH. It balances the interests of the wider public, in the provision of quality news and information, with the interests of the group’s shareholders, by eliminating both losses as well as the need for future funding.

Nevertheless, one cannot deny the continued successes of other news media companies elsewhere in an even more competitive and crowded space. Many shareholders and investors are, therefore, at a loss as to why the SPH media business would not be profitable given the near monopoly that SPH has for its print publications.

Management has invested in the media segment in a bid to stay relevant and current. For instance, more than S$20 million a year is spent on technology, product development and data analytics; and S$35 million on digital content and audience development talent in the newsroom.

There is therefore a question of whether it may be premature for SPH to divest and deconsolidate its media segment, even before the fruition of these initiatives, especially given the current Covid-19 pandemic.

At the same time, the challenges facing the media industry and SPH’s media business have been well-documented and established – so much so that the theme of “challenges in the industry” has been a recurring theme in SPH’s annual reports since 2015.

Fresh perspectives

The declining operating revenue and profitability in recent years attest to the challenges faced by SPH’s media segment. Some critics may say that it is “too little, too late”, and that more could be done sooner to bring in fresh perspectives.

SPH has said it will make an upfront capitalisation of S$110 million to the new entity – in the form of a cash injection of S$80 million, and S$30 million worth of SPH shares and SPH Reit units. SPH will have to answer to the shareholders who may be confounded by this “parting gift”, especially if the company views this segment as having value, that is, revenue generating and able to turn profitable over time.

I am certain that shareholders need more explanation, as it does seem that existing shareholders are paying (rather than being paid) for this deconsolidation. Additionally, I am aware that a number of investors are of the view that the media business could be more beneficial as a privatised entity or sold to a strategic third party as it does possess long-term value.

Currently, SPH is organised into three major operating segments: media, property and others. The latter segment includes investments in aged care, education, online classifieds and other adjacencies. Though not the most profitable, the media arm is nevertheless a major contributor to the group’s operating revenue. With the proposed deconsolidation of the media arm, SPH would be left with revenue from its retail and commercial properties.

Deconsolidation of media arm

The group has been proactive in the property segment. It currently owns 65 per cent of SPH Reit, and is a direct owner and manager of several domestic integrated developments and purpose-built student accommodations in the United Kingdom and Germany.

With the deconsolidation of the media arm, the property segment will drive the group’s operating revenue and profits. Assuming this is so, it would be necessary for SPH to clarify the roles of both SPH and SPH Reit. It would also be necessary for SPH to distinguish itself in this highly competitive space. Shareholders will look forward to more clarity in the coming months.

The outcome of this proposal will be determined by shareholders, who will vote on the resolution at the extraordinary general meeting.

  • The writer is David Gerald, founder, president and CEO of the Securities Investors Association (Singapore)