Singapore Telecommunications : Analyst Briefing (Transcript

		Half Year Ended 30 September 2022
		10 November 2022
	CORPORATE PARTICIPANTS	CONFERENCE CALL PARTICIPANTS
	Mr Yuen Kuan Moon - Group CEO	Mr Piyush Choudhary - HSBC
	Mr Arthur Lang - Group CFO	Mr Ranjan Sharma - JP Morgan
	Ms Kelly Bayer Rosmarin - CEO, Optus	Mr Neel Sinha - CLSA
	Mr Ng Kuo Pin - CEO, NCS	Mr Sachin Mittal - DBS
	Ms Anna Yip - CEO, Consumer Singapore	Mr Eric Choi - Barrenjoey Capital
	Mr Bill Chang - CEO, Group Enterprise &
	Regional Data Centre Business
	Ms Sin Yang Fong - Vice President, IR
	Start of Transcript
	Ms Sin Yang Fong - Vice President, IR

Good morning, ladies and gentlemen. Welcome to Singtel's results briefing for the half year ended 30 September 2022. My name is Sin Yang Fong. I'm the Vice President for Singtel Investor Relations. A warm welcome again.

Addressing us very shortly will be Mr. Yuen Kuan Moon, our Group CEO, who will make a short presentation from a couple of slides highlighting this set of results. He will be, after that, joined by his management team for a Q&A session, where we will take questions both from the audience here, as well as participants on our dial-in via Zoom. So without further ado, let me invite Moon.

Mr Yuen Kuan Moon - Group CEO

Thank you, Yang Fong. Good morning, everyone, and thank you for joining us here in person and good to see you and also welcome for those people who are joining us virtually. I can't see you, but thank you for joining us as well. I'll start with an overview of our performance and then followed by updates on our strategic reset, and then we'll open up the session for Q&As with the rest of my management team.

Let me begin with some of the key highlights for the half year. There's a major rebound on our core business, particularly in mobile, riding on roaming recovery and as well as higher adoption of 5G services. Airtel also outperformed as we see 4G upgrades and tariff rates hikes lifted ARPU with strong demand for its enterprise and home broadband solutions added to the overall growth momentum.

At the same time, we continue to scale our growth engines to capitalize on rapid digitalisation. NCS, our ICT business, posted sizeable bookings of S$1.3 billion and has expanded its presence in Australia through our recent acquisitions.

Our data centre business is doubling its capacity in Singapore and making inroads into the Thai market as well. Our financial position is solid, underpinned by a proven capital recycling model and strong cash flow generation. This allowed us to raise ordinary dividends and to fund our growth initiatives and as well as return surplus cash to our shareholders.

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Now, excluding forex movement, NBN migration revenues and Amobee, revenue actually rose 4% primarily on healthy mobile service and ICT growth. EBIT and EBITDA would have grown with margin improvements due to roaming recovery, price uplifts, as well as tighter cost controls.

Including a higher profit contribution from Airtel, the Group delivered a 2% increase in underlying net profit. Net profit increased 23%, as we recorded a gain of S$165 million from a number of exceptional items. With exceptionals, we saw a couple of large items, which I'll explain later.

We recorded a substantial gain from a divestment of a partial stake in Airtel and a dilution gain from the Google investment. This helped offset a non-cash charge for Optus goodwill, which reflects the steep rise in interest rates, as well as a weaker Australian dollar and the impact of weaker consumer and business sentiments with rising inflation.

This impairment does not affect the Group's cash flow or its ability to pay dividends, nor does it impact Optus' operational performance. More details on the rest of the exceptionals can be found in our MD &A.

Let us now take a closer look at each of the business units. Excluding the impact of NBN migration revenues, which have tapered off, Optus revenue increased 2%, with growth across its mobile and fixed business. The positive performance was led by a strong rebound in travel and uplift in prices and subscriber growth. With better margins and strong cost management, it recorded proportionally better EBITDA and EBIT.

Looking ahead, despite macro headwinds and weakening consumer sentiment, we are optimistic that the post-COVID recovery and travel rebound will continue to lift mobile service growth. Optus will continue to differentiate through its unique service proposition, while capturing synergies from the integration of consumer and enterprise businesses.

We remain deeply disappointed that Optus was the target of a cyberattack. Our main priority has been to protect our customers. Optus notified customers immediately and has been working relentlessly to support them in managing any potential data risks. This involves working closely with multiple federal and state government agencies and offices to support affected customers, as well as providing customers with complimentary credit monitoring services as an extra precaution. Regrettably, the recent cyberattack has interrupted Optus' momentum at the end of its half year. We saw a spike in churn in the immediate aftermath of the attack, but levels have since stabilised.

Meanwhile, the Group has made a provision of S$142 million to cover the cost of a number of activities to support customers, including commissioning an external independent review, credit monitoring services provided to affected customers and also replacement of impacted customers' identity documents where needed.

While the recent cyberattack on Optus is expected to impact near-term performance, we are focused on rebuilding trust in Optus and are confident that it will rebound given its strong business fundamentals.

The Singapore consumer business, on the other hand, saw improvement - improved performance led by strong mobile growth, roaming revenue, as well as strong 5G take-up. TV revenues were affected by the cessation of Premier League. However margins improved on the back of content cost savings and muted churn. As a result, we saw robust improvements in both EBITDA and EBIT.

We see further upside in mobile with roaming revenues at about 60% of pre-pandemic levels and especially rising 5G adoption and particularly we have now rolled out 5G to the prepaid segment as well. That said, competition remains very intense and we are focused on leading the market in quality and in customer experience, but we continue to keep a tight rein on costs, through rationalisation of our content portfolio, our increased digitalisation and improvement on productivity.

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Revenue growth in the enterprise segment was driven again by roaming recovery, as well as robust ICT sales from data centres. Despite rising inflationary pressures, operating costs were prudently managed, resulting in stable EBITDA and EBIT.

We expect the momentum in roaming services to remain strong as business travel continues to gain pace, while ongoing digitalisation helped boost our cyber security, unified comms, SD-WAN services. Another key focus is in increasing partnerships with enterprise to deploy 5G applications, which I'll touch on later.

NCS continued to ride the wave of digitalisation by governments and enterprises, with digital revenue rising to half of total revenues. Global business revenues also increased to 16% of total revenue, supported by S$161 million of contribution from acquisitions in Australia. This momentum is expected to continue into the second half, given its strong bookings and pipeline of local and regional projects.

However, margins are expected to be under pressure from post-acquisition costs, as well as increase in wages and investments in digital capabilities. To alleviate margin pressures, NCS is repricing for the increased costs of talent and optimising its onshore-offshore staff mix by leveraging on its global delivery network. It is also focused on driving operational synergies and cost savings, particularly with these new acquisitions in Australia and Singapore.

Contributions from our regional associates grew strongly on Airtel's continued outperformance in the market in India. Other associates posted higher revenues from robust data demand and reopening of their economies, despite intense competition pressures - competitive pressures. However, Telkomsel and Globe's profit contributions were impacted by higher depreciation, as well as investments in 5G and fibre, while Thai Baht and Philippine Peso depreciated sharply during the period.

Looking ahead, inflation and interest rate hikes are key concerns for our regional associates, although post-COVID reopening of economies will benefit their mobile business. There is also opportunity to lift prices as markets consolidate and 5G adoption increases. Our associates are also laying the foundation for future fixed broadband and enterprise growth by investing in fixed network and enterprise networks.

Our financial position remains robust. We generated over S$4 billion of cash in the last six months, reducing our net debt by S$3.4 billion. At the same time, we increased our proportion of fixed rate debt to 93%, stretched average maturities to over six years. This puts us in a good position to ride the volatile macro environment ahead.

With better business performance and robust financial standing, we've raised our interim dividend to S$0.046 or 76% of our underlying net profit, which is in line with our dividend policy of paying out between 60% and 80% of our underlying earnings.

As we have fully funded our growth initiatives and investment needs, we're also paying a special dividend of 5 cents from excess cash generated from our asset recycling initiatives. This capital management approach allows shareholders to share in the benefit of our asset recycling program, inline with our strategic reset.

We are committed to a sustainable dividend policy without sacrificing growth. Our annual operating cash flow of approximately S$5 billion funds our regular network capex, our spectrum, interest, as well as ordinary dividends. Since last April, we have also announced close to S$6 billion from our asset recycling programme, which will fund our 5G capex and growth initiatives. As explained earlier, excess cash from capital recycling can be used to pay down debt, fund future growth or returned to shareholders as special dividends.

Let me briefly now cover key highlights from each pillar of the strategic reset. First, we continued to lead in 5G with our differentiated set of products and services driving strong 5G take-up.We have

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close to 600,000 5G customers in Singapore and almost three million 5G connected devices in Australia. For enterprises, our focus is driving 5G - new 5G-use cases, be it through incubation programs or partnerships with various enterprises.

Moving on to our growth engines. We are rapidly scaling our data centre capacity, doubling Singapore's capacity to 120MW and adding another 20MW in Thailand, all by 2025. Our third pillar is on reallocating capital and unlocking value. We illuminated the sizeable value in our associates by selling a partial stake in Airtel. We also sold Globe's towers, as well as completed the divestment of Optus insurance and Amobee. These initiatives will help increase our return on invested capital and enhanced total shareholder returns.

Lastly, on championing people and sustainability. We are deploying energy-efficient radio cells to decarbonise our network, investing heavily to keep building a future-ready workforce, actively supporting our customers whose lives were impacted by the recent unfortunate floods in Australia.

With this, I end my presentation. Thank you.

Ms Sin Yang Fong - Vice President, IR

We'll now take a moment to just get setup for question and answer. So can I get helpers to help me with that? Online audience, please stay on the line and for everybody who's joined us, please be informed that I forgot to mention this earlier, the whole session is being recorded for playback and for transcription purposes.

All right. We are going to commence our question and answer session. We will first take questions from the audience from the floor here. So if you're - if you - let me call your name, okay, and then please tell us which company you represent and then your questions. I saw Piyush's hand. Can we

• yes, on mic. Thank you.

Mr Piyush Choudhary - HSBC

Hi, hello. Thanks. This is Piyush from HSBC. Congrats on the dividends, especially on the dividends. So my first is actually on that. Can you discuss the framework which you will be using to decide on special dividend? So let's say, in future you do further value unlocking, then what would be the framework used for special dividend? Because if I just simply see you have paid 33% of Airtel proceeds as special dividend. So your thoughts over there?

Secondly, on Optus, can you give us an update on steps taken after cyberattack to control the churn and how have been the subscriber drains in the month of October and November month to date?

Mr Yuen Kuan Moon - Group CEO

Okay. So maybe I will ask Arthur to talk about the special dividend. I think, suffice to say, you probably have recalled during our Investor Day, Arthur talked about the two pots of cash. You know, I'm sure he will explain how we look at - the use of funds and how we deploy our capital and then I will hand over to Kelly to talk about the Optus business environment. Kelly is online and she'll come in later. So, Arthur, maybe over to you to talk about our special dividend and how we look at cash.

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Mr Arthur Lang - Group CFO

Sure. Okay. Thank you Moon. Sachin, thanks for the question. Maybe just back--

Mr Yuen Kuan Moon - Group CEO

Piyush. Piyush.

Mr Arthur Lang - Group CFO

Sorry, Piyush. Sorry. I saw Sachin there. Okay. So thank you for the question. The - maybe to backtrack, you remember the beginning, when we came out with a dividend policy about 18 months ago. It was focused on ensuring that our dividend, our core dividend, was sustainable on an ongoing basis and it's based on core operations.

We did not want to comingle that cash with all our 5G and our growth needs. So we created this asset recycling model, which was very much very integral to our strategic reset. So, at that time, we started first. First and foremost, that was very important, top priority, to fund our growth, to fund our 5G, so we can keep that pot one intact and untouched.

Now that pot two has shown that over 18 months we were able to effectively recycle, and this model was proven in terms of - and is proven by the fact that we've raised S$6 billion, we felt that it was important then now - make sure we are fully funded from a growth perspective and then - now you layer on the volatile environment. We wanted to make sure that we have sufficient, I would say, cash to pay down any debt - expensive debt, that we have over the next two years at least. And then we had some excess.

We thought, okay, at the end of the day, we would like to reward or allow shareholders to share the benefits of this recycling with us. The way to share the benefits is in the form of this special dividend, where we pay excess cash over and above all the needs that we talked about in pot two.

Again, we do not want to comingle it with pot one. We do have expectations that we'd like, because it is part of our strategic reset. We will continue to recycle our assets, but the cash will still remain in pot two and we'd like to have the discipline that if there's any excess cash, after meeting all the needs that we need to fund our growth, any excess we return to shareholders, because we want shareholders to benefit from this as well.

So - but we want to maintain that discipline to keep it separate, because at the end of the day we don't want to go back to some of the things we did in the past and then we've got pressures when things take a turn for the worst. So that's the rationale behind that. And so what we have done, maybe just to elaborate a bit more, is we have announced a special dividend of 5 cents per share but it's split into two tranches. So not a one-time thing. So, the first record date I think is coming up and

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