SINGAPORE - Singapore Press Holdings (SPH), which publishes The Straits Times and Lianhe Zaobao, intends to transfer its media business to a not-for-profit company as part of a strategic review of its various businesses.
Announcing the move on Thursday (May 6), SPH chairman Lee Boon Yang said the transfer will enable the media business to focus on quality journalism and invest in talent and new technology to strengthen its digital capabilities.
The restructuring entails transferring all the media-related businesses, including relevant subsidiaries, employees, News Centre and Print Centre along with their respective leaseholds, and all related intellectual property and information technology assets, to a newly incorporated wholly-owned subsidiary, SPH Media Holdings Pte Ltd (SPH Media).
SPH will provide the initial resources and funding by capitalising SPH Media with a cash injection of $80 million, $30 million worth of SPH shares and SPH Reit units, and SPH's stakes in four of its digital media investments.
Under the restructuring proposal, SPH Media will eventually be transferred to a not-for-profit entity for a nominal sum. This will be a newly formed public company limited by guarantee, or CLG.
A CLG is an entity that does not have share capital or shareholders but, instead, has members who act as guarantors of the company's liabilities. It will be run on a commercial basis, but all profits made will be ploughed back and reinvested into growing its media business, focusing on its mission. The CLG structure will also allow SPH Media to seek funding from public and private sources.
More information on the CLG will be announced in due course, said SPH in a press statement on Thursday.
SPH said a not-for-profit structure will allow SPH Media to seek funding from public and private sources with a shared interest in supporting quality journalism.
After the transfer of SPH Media to the CLG, SPH will no longer be subject to shareholder and other relevant restrictions under the Newspaper and Printing Presses Act (NPPA).
The transfer of the media assets to the CLG is subject to SPH shareholders' approval at an extraordinary general meeting (EGM). At a press conference on Thursday, Dr Lee said the EGM would be called in early July and, upon shareholders' approval, the restructuring is expected to be completed by October or a bit earlier.
Credit Suisse (Singapore) is the appointed financial adviser for the review.
Tackling unprecedented industry disruption
The move is the most major restructuring in the industry since 1984, when SPH was formed through a merger of three organisations - the Straits Times Press group, Singapore News and Publications Limited, and Times Publishing Berhad.
That merger consolidated the flagship newspapers in different languages under one roof.
Explaining the rationale for the move, SPH said the media industry has faced "unprecedented disruption" in recent years, with SPH's operating revenue halving in the past five years largely due to a decline in print advertising and print subscription revenue.
SPH's media business recorded its first-ever loss of $11.4 million for the financial year that ended Aug 31, 2020.
"If not for the Jobs Support Scheme, the loss would have been a deeper $39.5 million," said Dr Lee.
"In recent years, we have right-sized the media operations in the sales and back-end support functions and cut costs without affecting our media capabilities. There remains little scope for further cost cuts without impairing the ability to maintain quality journalism."
Even with the resumption of activities after the circuit breaker last year, the decline in advertising revenue is expected to continue at a similar pace to that of the last five years.
Due to digital transformation efforts, SPH's average monthly unique audience across all its titles over the past two years has nearly doubled to a record 28 million, and digital circulation has surpassed print circulation.
But digital subscriptions and digital advertising have been unable to offset the decline in print advertising and print circulation revenues. The losses of the media business are likely to continue and widen.
SPH said that with the critical function the media business plays in providing quality news and information to the public, particularly in the vernacular languages, winding up the media business or selling it off is not a feasible option.
"However, remaining part of a publicly listed company where it is subject to expectations from shareholders of profitability and regular dividends is no longer a sustainable business model.
"Hence, a not-for-profit structure that allows SPH Media to seek funding from a range of public and private sources with a shared interest in supporting quality journalism and credible information is the optimal solution."
SPH had approached the Ministry of Communications and Information with a restructuring proposal to put the media business on a long-term sustainable financial footing. The ministry, which regulates SPH under the NPPA, has indicated its support for the restructuring. It has also given its in-principle approval for the shareholding and other relevant restrictions under the NPPA to be lifted from SPH upon the closing of the proposed restructuring.
The NPPA states that no person shall, without the approval of the Minister, become a substantial shareholder of SPH; or enter into any agreement or arrangement "to act together with any other person with respect to the acquisition, holding or the exercise of rights in relation to, in aggregate more than 5 per cent of the shares".
Dr Lee said: "Without the encumbrances of the NPPA, SPH will have greater financial flexibility to tailor its capital and shareholding structure to pursue strategic growth opportunities across its other businesses and maximise returns for shareholders."
While a not-for-profit model may be "unfamiliar" in Singapore, SPH said that many news organisations overseas operate under similar funding structures, including the Guardian, which is controlled by the Scott Trust, in Britain, and the Tampa Bay Times, which is owned by the non-profit Poynter Institute, in the United States.
Dr Lee said the fundamental issue that needs to be addressed is the long-term viability of SPH Media in its present structure, that is subject to market pressures.
"SPH shareholders are not likely to tolerate the continued negative impact that the media business has on the company's financial prospects. On the other hand, we cannot allow a functioning, trusted and respected media organisation to be whittled down over time by market pressure and commercial constraints.
"In the context of Singapore's multiracial society, SPH serves a crucial function by providing news and information in vernacular languages to serve Singapore's diverse ethnic communities."
Considering these important roles, he said, winding up or selling off the media business is not an option for the group, as it will affect access to quality news and undermine media diversity and competition in Singapore. Either option would also require regulatory approval.
Preserving the china bowl
Responding to questions about whether employees face wage and bonus cuts now that SPH Media will be a non-profit-making entity, SPH chief executive officer Ng Yat Chung said there is no further scope for costs cuts without impairing the quality of journalism that SPH Media provides.
"The exercise is to make sure that we can preserve the fine bowl of china. The intention is not to do anything that will impair the ability of SPH Media to continue to provide quality journalism."
He was referring to what founding prime minister Lee Kuan Yew said to late president S R Nathan when the latter was appointed executive chairman of the Straits Times Press, a few years before the formation of SPH.
Mr Lee had told Mr Nathan: "Nathan, I am giving you The Straits Times. It has 150 years of history. It has been a good paper. It is like a bowl of china. If you break it, I can piece it together. But it will never be the same. Try not to destroy it."
Dr Lee said that he could not speak for the CLG, as the intent of the restructuring is for it to operate independently. But the restructuring exercise is to ensure that the media capability in SPH Media is in no way disadvantaged or undermined by the transfer.
"The CLG is fully aware of this intention and fully cognisant of the fact that it has now taken on the responsibility of caring for this china bowl. It will then continue to nurture and strengthen this previous legacy, rather than undermine it - whether by further right-sizing or wage adjustments. It would have to be very careful in ensuring that media capabilities are in no way adversely affected as a result of this transfer."
SPH called for a halt in the trading of its shares at 7.37am on Thursday morning before the stock market opened.
Shares of SPH closed two cents or 1.1 per cent lower at $1.79 on Wednesday.
SPH posted a net profit of $97.9 million for the first half of the financial year that ended on Feb 28 - a 26.1 per cent rise. The company remains operationally profitable at $119.8 million.
The media segment posted a profit of $3.1 million, down 70.9 per cent year on year. Excluding grants from the Jobs Support Scheme, it recognised a pre-tax loss of $9.7 million.
SPH's core business is in the publishing of newspapers, magazines and books, in both print and digital editions. The company also owns about 66 per cent of SPH Reit.
SPH owns and operates The Seletar Mall, and is developing an integrated development consisting of The Woodleigh Residences and The Woodleigh Mall. In addition, it owns purpose-built student accommodation in Britain and Germany.
The company also owns Orange Valley, one of Singapore's largest nursing homes, and has investments in motoring portal sgCarMart, job platform FastJobs, telco M1 and South Korean e-commerce giant Coupang.
It had 3,875 employees in financial year 2020.
What is a 'company limited by guarantee'?
A public company limited by guarantee (CLG) is usually formed to carry out non-profit making activities that have some public or national interest, such as arts promotion.
It has members instead of shareholders who agree to pay a fixed sum in case the company is wound up, according to the Accounting and Corporate Regulatory Authority (Acra). In comparison, a company limited by shares has shareholders and may raise capital by offering shares or debentures to the public.
That said, CLGs have a corporate status and have to be registered with Acra like other business entities and be governed by the Companies Act. CLGs are liable to pay corporate tax and may qualify for tax deductions or exemptions.
A number of news organisations globally operate on such a model through media trusts and foundations. They include The Guardian in Britain, which has been controlled by the Scott Trust since 1936.
Germany’s largest media conglomerate Bertelsmann is owned by a foundation, while the Philadelphia Inquirer in the United States is owned by the Lenfest Institute.
CLGs are prohibited from paying dividends and profits to its members, according to SingaporeLegalAdvice.com. It means any profits will be ploughed back into the company. The structure is thus unsuitable for for-profit organisations where members usually seek returns on investments via payouts like dividends.
Upon incorporation, the CLG is considered to have a separate legal entity and is distinct from its members, added the legal portal. This means the company may sue or be sued in its own name, and its members will be protected from any liabilities it incurs.
Some CLGs may obtain charity status, exempting them from tax. But CLGs are not the same as charitable trusts, which are not separate legal entities and whose trustees will thus be held fully liable.
Some notable CLGs here are the National University of Singapore, Temasek Foundation and The Esplanade Co – a CLG with charity and Institution of a Public Character status.
Poon Chian Hui and Prisca Ang